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.

The State of Malaysian Racing

Malaysia hosts a round of the FIA Formula 1 world championship. Clearly, this has succeeded enormously in raising awareness throughout the world. That is clearly why a lot of other (especially third world) countries are desperate to host a round and are prepared to invest vast sums of money in racing infrastructure and spend enormously every year on Bernie.

Its interesting that in the United States its the organizers who pay circuit owners to hold the event. Witness the recent sale of rights to hold the Long Beach Grand Prix. But elsewhere around the world the circus ringmaster holds all the cards.

Whether or not the raised awareness of Malaysia brings with it tangible economic benefits is debatable and to a lot of racing fans, they couldn't care less.

The government in Malaysia is a most powerful organisation and is by and large the biggest spender in the economy. In proportionate terms (of GDP) government spending in Malaysia I believe dwarves those of any Western government. The Grand Prix certainly could not happen without government spending.

So Malaysians are very lucky in one sense. In the West, the existence and demise of circuits and events are largely at the mercy of market forces. Silverstone for instance needed to beg the UK government of come to their aid when Bernie was piling on the pressure. The UK government assistance is hardly the amount given by the Malaysian government towards Sepang. Its only because of the special historic significance that Silverstone holds, that the UK government eventually lent some aid.

But thats Silverstone. Other circuits like Brands, Oulton, Snetterton, Mallory and all the rest have all got to fend for themselves. But thankfully the UK motorsport industry has been around for ages and there are lots of petrolheads in Britain. The same situation can be found in America, Germany, France, Italy and Japan. All countries able to sustain a motorsport industry largely independent of any government initiatives.

It is clear that motor racing is an expensive sport. To succeed a healthy bank balance is required. Malaysia's economy in terms of GDP is nowhere near the aforementioned countries. And despite the round of Formula 1 held every year, most Malaysians couldn't give bugger all about racing. And the ones that do feel very alienated.

So with crowd attendance at Malaysian racing events at pathetic levels, there is no "eco-system" able to sustain a healthy motor sports industry in this country. Sponsors don't see crowds and in turn don't want to sponsor teams and drivers. This in turn means that you'll only see a bunch of rich but talentless businessmen racing in their flash cars. And in turn, this puts off the crowds who (1) want to see great talent and (2) don't feel any connection and don't identify with these businessmen. A downward spiral.

There's more. Apparently sponsoring events in Sepang is not a clear cut affair. Some petroleum companies with near limitless levels of cash are not allowed to sponsor events. Only because the Sepang circuit has strong connections with a local oil company. No names need be mentioned.

My point is that its difficult to sustain motorsports in Malaysia. Without a sustained and strong, competitive championship, how do you pick out the real cream of the crop?

What chance then for Malaysia's young pilotes? Well first and hopefully, he or she would have picked good parents to be born on to. That way daddy dearest can pay for your racing for a while. Secondly and again, in steps the government. Witness Alex Yoong's stint in Formula 1. Largely funded by a comnination of government and a few Malaysian corporate sponsors. Now, ask any Malaysian and he or she will feel that those corporate sponsors were definitely coerced into sponsoring Alex Yoong. Licenses and permits from the authorities have to renewed you understand. A messy affair to be sure. Word is that the sponsors never paid Paul Stoddart and Minardi his money. In turn, poor Alex is now having trouble with Paul collecting his back pay.

The problem in Malaysia is that once the government steps in with its cash, greed and politics arrive with it. Sounds familiar right Bernie? But in the case of the Formula 1 politics, the protagonists have a high degree of knowledge about the sport. Even Max Mosley if you compare to some of the the morons over here. In Malaysia, the powers have very little knowledge but plenty of greed.

Now when I say greed, it isn't just for money but for recognition, status and above all, power. A healthy dollop of cash helps. Greed overpowers any need to succeed in the sport itself. So, those who can best pamper to their greed, gets the loot in Malaysia. But those who do so aren't necessarily the best this country has to offer. I say far from it.

But because they aren't well connected to the powers, they miss out on the much needed government funding. Make no mistake. In a small economy such as this, government aid is essential for the budding international racing driver.

I will paraphrase the Malaysian Prime Minister himself on this matter when he says to the effect that he himself is aware of this. Although he was referring to the general political and economic context, it is apt that it be applied to this matter. For it is a reflection of Malaysia life. That a small minority are given most of the opportunities but abuse it, many have no opportunities at all.

What irks many in Malaysia is that its the taxpayer's money thats funding these below par performances. Well, now you know why I absolutely detest cronies.

Now you may wonder why I've gone local all of a sudden. Well, it was because of reading this interesting post in a forum on a Malaysia Formula 1 website. A pity that only Malaysians would understand it but the language of the poster is dreadfully hilarious. I have no idea whether his allegations have any grain of truth to it but it reflects a lot of the suspicion in Malaysian minds.

German Grand Prix

I may not like this new Hokkenheim circuit but I have to admit, the racing here was better than at Silverstone a fortnight ago. This circuit, remodelled by Herman Tilke carries his characteristic tight and slow corners, where aerodynamic turbulence is less of a factor. The cars relying much more on mechanical grip and the tyres. This may be what the FIA wants for the future but god, those slow corners are dreadful and don't show off what the cars can really do in the twisty bits.

You'd have to wait for Spa for that where the fast sweeps adds to the spectacle. But I fear the cars would be very much affected by aero disturbances there, as in Silverstone.

Yet again, McLaren are doing the favourite party trick. That is to let their drivers down just when it matters most. Raikkonen didn't put a foot wrong all weekend except for that lurid, go-kart like slide during his qualifying lap. Even then he managed to stick it into pole. The driver that is arguably letting his team down in Juan Pablo Montoya whose lift off oversteer at the final couple of bends ended up in a spin and a trip into the gravel.

So quick is that McLaren though, Juan Pablo managed to fight his way from twentieth and last all the way to finishing second in the race. To say that the cars were not affected by aero turbulence at all can't be true. Once Montoya had swept up into the top ten (which didn't take long at all), his progressed was slowed by the slower cars up front. His overtaking largely happening during the pitstops.

My theory is that whilst the McLaren has superb aero and is clearly the most agile and well balanced car out there, nevertheless, the Mercedes engine doesn't have the grunt of the other engines. Reportedly its power output is significantly less than Toyota, BMW and Ferrari. Although, Juan Pablo did manage to dispatch Ralf Schumacher with ease before the first stops. So, the McLaren relies much more on its chassis and aero for its speed. And getting stuck behind the likes of Button and Schumacher spoils the aero balance especially. Juan Pablo misses the extra grunt of the Honda and Ferrari engine.

Nevertheless, Juan Pablo had a lot of fuel in his McLaren and could run much longer than the rest. Indeed Juan Pablo spoke of saving fuel running behind the slower cars. Once in clear air, he could build up a cushion and overtake the BAR and Ferrari in the pits. Still, he should have stuck the McLaren on the front row and possibly win this race.

Michael Schumacher ran well in the opening stages in third and once Kimi's McLaren retired moved into second but unable to do anything with the speeding Renault ahead. Fernando Alonso in his own words had a boring afternoon. His Renault and the McLarens are miles ahead of the rest.

Schumacher elected to use softer Bridgestone tyres which was a very interesting tactic. Obviously his plan was to qualify ahead of as many people as possible behind the Renaults and McLarens. He must have known from free practice that the Japanese rubber wouldn't last the race and indeed in free practice his tyres were going bald. But given the slowish nature of this circuit, he could fight a rear guard action towards the end of the race.

His strategy succeeded. His Ferrari once his tyres were worn became a scarlet roadblock and he managed to hold off Button and Montoya for a long time. Jenson eventually made it through with a good overtaking move at the hairpin. Juan Pablo overtook him once Michael dived in for his second fuel stop. From then on, you could tell the Ferrari was losing more and more grip as the race drew to a close.

Schumacher's lap times were getting slower and slower. In the end, he might have hung on to fourth but for a fuel feed problem. This let Giancarlo through a couple of laps from the end. Behind Michael was a queue of cars including Ralf Schumacher's Toyota and David Coulthard's Red Bull, having a good weekend. However, the Ferrari's pace is a tribute to Michael's driving and good strategy. Otherwise, he would have suffered the same fate as Rubens Barrichello who finished behind Christian Klein after being passed by the Austrain. In the end Barrichello's Ferrari was lapped by leader Alonso.

Spare a thought for Raikkonen. He was setting lap times in the 1m 14s during the race, in a package clearly suited for him. He was pulling away from Fernando Alonso in what looked like a sure and easy win. In the end a pointless exercise. His hydraulic failure reminded me of the same one that afflicted Juan Pablo's McLaren at Magny Cours. Despite Ron Dennis' claims that Kimi should stay with McLaren to win the championship, young Kimi must seriously be thinking about driving other cars. Just when will McLaren sort their fast but fragile cars? Even a die hard McLaren fan like myself is getting pretty sick of this.

Toyota, in my mind are moving backwards. After some stellar performances in Bahrain and Malaysia, the team has not managed to consolidate and build upon that. The problem with the Toyotas seem to be the way they use their rubber. In the early part of the year, it seemed that they can start well but their pace bleeds off towards the end. At this stage of the championship, they're starting horridly but the car builds up speed towards the end. Even then, in terms of outright raw pace they're slipping badly behind the McLarens, Renaults and even deadly rivals BAR Honda. No surprises then that Ferrari are ahead of the in the constructors race.

Mike Gascoyne has plenty to do yet. However, I think as experienced as Gustav Brunner is, I should think that Mike would be better off with a new and more dynamic chassis designer. As in 2004, Gustav runs out of ideas in mid season.

One chap who didn't have a good weekend was Jacques Villenueve. He had a coming together with rookie Doornbos and later ran into the back of Tiago Monteiro. Poor Jacques is having a torrid time this year and once again outpaced and outraced by Filipe Massa who finished in eighth. Mario Thiessen must be shaking his head and Sauber contract or not, Mario can't afford this in his BMW team next year.

There was some good battles for the podium in Germany this weekend but I think all of us wants to see a fight for the lead. Something like the opening stages in Montreal where the Renaults and McLarens were having a good battle royal, but happening throughout the race. One thing's for sure, I doubt we'll get that at Hungary this weekend.

But happily again for me, the Ferraris despite all the testing (cheating) they've been doing are still struggling and getting left for dead. Long may that continue. Perhaps Ron Dennis was right when a year ago at Spa he predicted the fall of Maranello. The old guard is changing. Clearly, they miss Rory Byrne's hand at designing the cars. Jean Todt some say is getting a bit too distracted by his glamour seeking wife and spends less time at the factory.

On top of that he has to run the Ferrari road car operations. Once Ross Brawn leaves, perhaps at the end of next year I believe the scarlet cars could be facing another long drought of championships. Whether it will last 21 years as it did before year 2000 is another matter. if Michael wants to continue after 2006, he's going to have to convince the top people to stay on and Ferrari are going to need someone better than Aldo Costa to pen their racing cars.

If Michael leaves, I simply don't think anyone, not Raikkonen, not Button nor Alonso, could fill his shoes. Ferrari is his team and without him, they would be struggling even more this year. When he leaves, it won't be the same team and that is something Kimi, Fernando and Jenson must realise. They may be as quick as Michael on the racing track but they simply don't have the leadership and technical qualities that the German has.