Expert: 5-year plan for car price cut is right

"Five years is the right timing to reduce car prices because a sudden reduction will impact the second-hand car industry," Malaysia Automotive Institute (MAI) chief executive officer Madani Sahari said.

He said though the car price cut plan has recently -received wide publicity, the exercise itself started last year with some popular car brands reducing their car prices by 2-5 per cent.

"The government has had the car price reduction plan in the yet-to-be-announced National Automotive Policy since 2011 and had started to implement it since last year in a silent way," he said.

Madani was speaking to reporters on the sidelines of a forum on "Business Time Insight -- The National Automotive Policy" here today.

On Tuesday, Prime Minister Datuk Seri Najib Tun Razak reiterated the government's commitment to gradually reduce car prices by 20-30 per cent within the next five years.

Madani said the car price reduction does not involve a cut in the excise duties, as Malaysian companies in reality are only paying about 40 per cent of excise duties, even though it hovers at around 65-105 per cent depending on the segment, due to value-added activities undertaken in the country.

"Completely knocked down (CKD) cars which are assembled in Malaysia basically have value-added activities, and are therefore receiving the privilege of lower excise duty. "Based on our calculations, most of our CKD cars enjoy excise duty in the range of 40 per cent," he said.

The rate of excise duty, he said, is in line with neighbouring countries such as Indonesia and Thailand which have imposed excise duties of between 30 to 50 per cent, depending on the segment.

He said the key factor in reducing car prices is by opening up the automotive industry to allow healthy competition, which would eventually bring prices down. Meanwhile, Volkswagen Group Malaysia managing director Dr Zeno Kerschbaumer said the car price reduction policy shows the Malaysian government's effort to put consumers into the focus of their attention.

"This perfectly matches our (Volkswagen's) policy to continuously bring the latest technology to customers at the best price possible.

"I think it's a big message to consumers and give them the confidence that the government is giving the consumers interest in the focus of their policy," he said. He said the move is also in line with the principle that the customers have to drive the policy.