News and views on motorsports

Thursday, July 28, 2005

The AP Issue

This post has got nothing much to do with racing per se but its such a hot topic in Malaysia right now, I'm gonna have a go with my $0.02. Here are my thoughts and observations:

1. Car import permits (APs) should be given to independent persons. Now an independent person is someone who is independent to the issuer of the import permit. The issuer in this case being the Ministry of Trade and all employees and persons who hold office at the Ministry. Therefore, import permits should not be given to persons connected to the Ministry. In addition, an independent person must also be seen to be indpependent. This is a subtle but important point.

Take this case for instance. The niece of the Minister of Trade might in fact act independently of her aunt, the minister. The aunt may in fact choose not to grant favourable terms to her niece. It may in fact be the case that the niece is indeed a capable businessperson in her own right.

But the problem is clearly, she is not seen to be independent. Because of her close, blood relations with the minister, no one will believe her.

Its just good corporate practise that suppliers or vendors who sell to a company cannot be run or owned by persons closely connected to any person in said company. Thats good practise because it avoids abuse. And there can be no arguments as to the integrity of the company's employees or its supplier.

Hence, the Ministry of Trade (and this applies to a whole host of government agencies) should not be issuing out these highly valuable import permits to closely connected persons. The whole question of integrity will arise.

2. The issue of independence should be extended to former employees of the Ministry of Trade. Now it is not unknown worldwide for former government employees to be employed in industry or start their own businesses. But clearly in this case, it is a whole different matter. The import permits each worth up to RM30,000 in the open market are granted at nearly zero costs to these former employees. Zero cost, ladies and gentlemen. Some argue administration charges but these are miniscule compared to the value of the permits.

The opportunity for arbitrage is clearly a very real and tempting proposition. If you were granted a thousand of these permits you could stand to gain up to RM30 million simply by selling these permits on to interested parties. And there are of course no shortage of takers for these permits. Each and every one of them are utilized.

3. The whole system of import permits is open to abuse. The arbitrage opportunities are clearly too great a temptation especially for those who do not possess the requisite skills and expertise to actually utilize the permits for the purposes of operating a car import business. Its then just smart business sense to simply sell off the permits.

4. A car manufacturer, after more than 20 years of operation, that still requires government aid for its survival should simply be shot dead. The cost of protectionism is in the end borne by just one party. The consumers. For an age now, Malaysians having been paying over the odds for cars of unbearable quality. Measures implemented to protect the national car causes artificially high prices on imported vehicles. These cars are beyond the reach of most ordinary Malaysians.

And yet, the national car in itself is not an exactly cheap piece of machinery. The Proton Waja for instance costs RM70,000 or just about 2.5-3 times the average executive annual salary. Thats so goddamned ludicrous.

Clearly, Malaysians could be driving much cheaper and ifinitely higher quality vehicles if imported vehicles were not slapped the ridiculous taxes imposed upon them. For those who don't know the top tax rate on imported cars in Malaysia is 300%. The minimum is 100%. And British buyers complain about 17.5% VAT. Hah. In addition there are directives by the government that whatever the case may be these cars must be priced higher than the equivalent national car.

Now do the math. Economies of scale dictate that the unit cost of a Honda or Toyota is going to be a lot less than small volume production Protons. Logically speaking then, these manufacturers could offer Malaysians modern, more environmentally friendly and economical vehicles at a cheaper price. Instead what do Malaysians get to drive? In the case of the Proton Iswara a car that is basically 22 years old using technology that Mitsubishi has long disposed of. The Proton Satria in all its guises is another venerable offering. The basic design and technology comes from the CA4A Mitsubishi Colts circa 1988, being sold to Malaysians at a cost of nearly USD10,000.

Crazy considering that the big manufacturers change their models every 5 years.

5. Like me, most Malaysian's end up owning Protons as their first cars. But after that, given a choice, would they want another Proton? Hell no. If you could afford it an import is the way to go. You just know that Proton's interior is going to annoyingly squeak after a month, driving you, the spender of hard earned cash, up the frickin wall.

A Toyota Vios (Yaris) or a Proton Waja? Priced closely together, the Waja is a bigger car. And cheaper. But I'd go for a Vios in a heartbeat.

6. What was the Asean Free Trade Agreement all about? I thought the aim of a free trade agreement is to foster inter regional trade by removing protectionist and other trade barriers. You would be forgiven to expect cheaper goods and services. And given the huge outlay you make for cars, you would be forgiven to cherish the prospect of cheaper vehicles saving you, the consumer, a huge dollop of cash.

But did car prices fall? It most certainly did not. Import duties were replaced with excise duties and other government directives and voila! Prices have now increased instead. At the time of writing its expected to increase even further. Word has it imported vehicle prices will be raised by 20% in the next few months. Twenty bloody percent!!!

Allow me to illustrate. Take the case of the BMW 330i. Listed by BMW Malaysia at RM428,000. Call it USD 122,000. A twenty percent price increase brings it up to half a million ringgit or a whopping USD 143,000. I think you could definitely buy the latest Porsche 911 with change in the States for that money or a Ferrari.

7. Nationalism, national pride or whatever aside, haven't you, dear Malaysian consumer, have had enough of paying for overpriced, sub quality cars? Three years of your salary up in smoke on a depreciating asset. Or should I say liability? If the government's intention is to promote heavy industries in this country, I'd say there are plenty of other routes into it. After all, do we see a Canadian car manufacturer? No we don't and why should the Canadians need one?. In fact, we don't even see a British owned car manufacturer.

What on Earth was the Malaysian Multimedia Super Corridor all about if not to foster investments and expertise into high value added technology? Malaysia should have seriously pursued that route instead of making the MSC a glorified real estate project. Thats where the future lies, not in manufacturing cars for the fiscal benefit of cronies. In the end, the consumers pay and pay dearly for such things.

Malaysia ought to be developing high added value and high tech expertise. If Indians in Bangalore can do it, I am certain if Malaysians were serious, we could easily do the same or even better. Singaporeans can be smug about their achievements in the tech sector but thats only because Malaysians have been so badly led, misguided and mismanaged. If Malaysia were really serious, that tiny speck of land to Malaysia's South simply wouldn't get a look in.

I have digressed, I do apologise. However, my point is that Proton and to a much lesser extent Perodua is completely unnecessary for the long term future of Malaysia. There are other avenues for developing the country.

8. The car market should be made open. It would force Proton to get serious and it would benefit consumers tremendously with higher quality and lower prices. And just to touch on a bit of racing, more Malaysian competitors would be better able to afford imported racing cars to produce better, more atrractive and more competitive racing.

9. The situtaion I have just discribed would seem inexplicable to anyone living in the West and would not be tolerated. And yet, Malaysians simply smile and let the powers get away with it because Malaysians are told that its good for them. Good for a small bunch of cronies who profit from it is the reality of the situation.

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