Concerns on year-end snap election weigh heavily on auto sector

It is quite certain that Prime Minister Muhyiddin Yassin will be calling for an unprecedented snap election. The only question left is when. Considering that our annual national budget is usually tabled sometime around October/November, you can expect the snap election to be held shortly before the year ends.

What does this has to do with the automotive industry? Quite a fair bit.

Within a span of just 2 years, the Malaysia have gone through three different governments, and along with it, policies and interpretation of policies that affects the car industry.

Each time the government changed, there was a direct impact on businesses, and it was not always a positive impact.

First was the winding down of EEV incentives for locally-assembled cars, then the switch from SST to GST, and then back to SST. There was also the re-interoperation of tax laws, which will drive prices up after 31-December 2020.

Each time there’s an election, the car market will stall. Some politician will promise to look into our country’s high car taxes (after being lied to so many times, don’t Malaysians ever learn?). Someone else will trigger yet another discussion about GST vs SST, and there will inevitably be concerns on whether will car prices go up/come down. 

After the ‘Sheraton Move’ on 23-February, there was a change in ministers for the Ministry of International Trade and Industry (MITI) and Ministry of Finance (MoF), the third time in just two years.

Each time there was a change, proposals and negotiations have to re-start from scratch. The new guy will have his own set of ideas and the bureaucrats working under him will have to follow.

Remember that Malaysia’s tax incentives locally-assembled cars are don’t apply equally to everyone. It’s subject to MITI and MoF’s approval, considered on a case-by-case basis.

Malaysia imposes a punitive 75 – 105 percent excise tax on all cars. However, the Industrial Linkage Program (ILP) allows for rebates based on the value of content/development work. There’s also the Energy Efficient Vehicles (EEV) incentive. Specifics of the incentives are not made public but sources familiar with the topic say it used to offer 85 percent discount for locally-assembled hybrids.

With the current government administration, some manufacturers say there is no clarity as to whether the 85 percent discount is still valid, others see no issue and are still doing business as usual.

BMW Group Malaysia for example, recently launched the locally-assembled BMW X5 Plug-in Hybrid, which at RM 440,745 (without 5 percent sales tax), is RM 170,000 cheaper than the previous imported from USA X5 xDrive40i M Sport.

“Things are just not moving. Azmin Ali is more interested in who’s going to become the next Prime Minister than carrying out his duties,” lamented an auto industry executive in charge of government affairs.

But right before we felt a bit uneasy with the partisan politics slant, he was quick to add that things didn’t move any faster when Darell Leiking was in charge either, as he was quite inexperienced.

The point he was trying to make is simple – the excessive politicking is getting in the way of progress.

“The NAP has outlined a lot of aspirations, but what we need is a clear, written answer on our application for EEV incentives,” lamented another executive.

“We have heard a lot of promises in NAP, but our localization project cannot proceed until we receive the signed document, confirming that these are the incentives that we will be getting. Our headquarters are losing patience with the back-forth and have warned us not to go back to them with any new specs request until we get a signed document from the government,” he added.

Another manufacturer told us that talks with the government for their CKD project had to be re-started after Sheraton Move happened. “We had to brief the new guys all over again, and have pushed back the project by one year,” said one executive.

Others are more positive about the matter.

“A snap election will bring some short-term pain, but if it’s for a better long-term good then we should just face it. Get it over and done with, hopefully after that we can get on with our business. A bit more clarity on NAP would be appreciated.”