Think the Toyota RAV4 is expensive? Brace yourself for higher prices of new cars

This week’s biggest trending news is without a doubt, the shocking price of the all-new Toyota RAV4. With an estimated price of RM 203,880 for the 2.0L variant and RM 223,880 for the 2.5L variant (temporarily discounted to RM 196,436 and RM 215,665 respectively), you have to be a huge fan of the RAV4 to put money on one.

The Toyota RAV4 is meant to be Toyota’s answer to the Honda CR-V and Mazda CX-5.

In Malaysia however, things have taken a slightly different twist. At its current price, the Malaysian market Toyota RAV4 is priced in the same bracket as a BMW X1 (RM 233,800) and Mercedes-Benz GLA 200 (outgoing generation model, RM 223,888) – all prices with SST.

It is safe to say that Honda Malaysia and Bermaz Motor won’t be bothered by the RAV4. Which is a shame because the Toyota RAV4 is the world’s best-selling SUV of 2019, with 950,000 units sold, ahead of the Honda CR-V (810,000 units) and Volkswagen Tiguan (740,000 units).

Why is it so well received? Well the RAV4 was the progenitor of the passenger car-based family SUV genre, a nameplate trusted by SUV buyers since 1994.

At a glance, you might be tempted to think that UMW Toyota Motor is run by fools. Why bother introducing a product that’s going to miss its target market segment by two football fields?

But first, why is the Toyota RAV4 so expensive?

Believe it or not, the Toyota RAV4 is actually cheaper than the Honda CR-V, not by a small margin, but by a whopping RM 8,000 plus cheaper. A tax-free Toyota RAV4 2.5L is priced at RM 130,207 while a similarly equipped Honda CR-V 1.5 TC-P is priced at RM 138,500.

However, the RAV4 comes fully imported from Japan. As such, it gets slapped with the maximum applicable excise tax. Since our duty structure is still based on archaic engine capacity-based formulas, the naturally aspirated RAV4 is also at a disadvantage (2.0-litre and 2.5-litre, naturally aspirated).

With that, the RAV4 went from being cheaper than the Melaka-assembled Honda CR-V/Kulim-assembled Mazda CX-5 to becoming a rival to a BMW X1. Only in Malaysia.

What if we were to tell you that price hikes will happen to other brands too very soon?

When the Thailand-made Toyota Camry was launched at RM 196,888 everyone laughed at it.

But what happened next? The new generation Honda Accord’s price went up to RM 195,900 (when similarly equipped as Camry 2.5V), despite being locally-assembled.

There’s hardly any difference in prices between the Honda Accord and Toyota Camry, despite the latter being imported from Thailand and has to pay higher excise duties (locally-assembled Accord gets discounts based on value of local content purchased).

Even the ageing, lower specifications and locally-assembled Volkswagen Passat isn’t that much cheaper – at RM 189,012.

Last week, the new Honda BR-V facelift was announced at RM 89,900 – RM 96,900. It used to be priced at RM 80,989 – RM 87,701 (SST price). That’s a circa RM 9k increase across a board, nearly 10 percent jump in prices.

The G20 generation BMW 320i was launched earlier this year at RM 243,800 – that’s RM 10,000 more than the previous, short lived F30 generation 320i.

A few months later, Mazda updated its CX-9 but prices also went up by an eye watering RM 29,000, to RM 319,610 for the 2WD variant and RM 336,610 for the 4WD variant.

Remember the Mercedes-Benz A-Class? It used to be priced at RM 198,888 and RM 238,888 (SST, 2013) for the A200 and A250 respectively but the current W177 generation was launched at RM 227,888 and RM 263,888. In other words, prices have gone up by a whopping RM 30k across the range.

Then there’s the Mercedes-Benz GLC. The GLC went from RM 293,888 for the GLC 200 and RM 333,888 for the GLC 250 (SST, 2018) to RM 299,888 and RM 349,888 respectively, the latter re-designated as the GLC 300.

What is happening is that the Malaysian Ringgit has taken a severe hit against the US Dollar, the main currency denomination used by trading companies. Ten years ago, the Ringgit used to trade at low RM 3 plus. Today, it’s hovering at low RM 4 plus.

The way car taxes are calculated also means that a RM 5,000 difference in a car's wholesale price due to forex can quickly balloon to adding RM 20,000 to the car's retail price. Why? Because sales tax is calculated after excise/import taxes are added, in other words its tax upon tax.

Every time a new generation model is introduced, a new round of price negotiation is necessary and these are done based prevailing/projected forex rates.

There is little upside for Ringgit in the near-term and few manufacturers are willing to cut a better deal for Malaysian importers – our market is just too small.

This is why most recent new generation model launches have seen prices climbing up rather steeply.

Recall also that the previous Pakatan Harapan government had already confirmed that new car prices are set to increase after 31-December 2020, due to the new Open Market Value (OMV) method of calculating car taxes, which is expected to bump car prices up by between 0-20 percent, depending on model.

In other words, further increase in prices are coming.

The current Perikatan Nasional government has been keeping quiet on the matter but it’s rather naïve to expect them to withdraw it. Somebody has to fund the government’s RM 280 billion Economic Stimulus Package right?

Don’t laugh at the Toyota RAV4’s price. As the Toyota Camry has shown us, the direction of the Toyota RAV4’s price is yet another canary in the industry, an early warning of sorts.

In the near-term, the only beneficiaries in this ‘new normal’ of higher car prices are Proton and Perodua, which due to the nature of excise duty rebates are given out, pay little or no excise duties. Nearly everyone else will see prices creeping upwards, some more than others.

On the upside, we have high hopes for the Toyota RAV4. We’ve experienced the TNGA-K platform in the Toyota Camry – it’s shockingly well balanced. So comfortable and yet handles so well. We don’t expect any less from the similar TNGA-K platform Toyota RAV4. The Honda CR-V is cheaper but it also has the poorest ride comfort.

We will be reviewing the Toyota RAV4 soon so come back again to find out if it’s worth buying one over a BMW X1.

On paper, put aside the badge, the poorly equipped BMW X1 (no ADAS, no Android Auto, cabin doesn’t feel premium enough) offers little against the highly equipped RAV4 but of course, brand snobs won’t see it that way.

The biggest problem for the Toyota RAV4 is not the BMW X1 but its own stalemates the Toyota Harrier (the last turbocharged Harrier) and Lexus UX 200, which although cost more, offer a properly premium product for their asking price, plus the peace of mind ownership experience that comes with every Toyota/Lexus.