I’m sure you all have heard about this campaign been campaigned recently by the opposition Pakatan Rakyat and I bet as soon as you heard about this campaign, your imagination started to go bananas thinking of all the cars you would be able to buy if the prices were reduced. However, have you ever thought whether “it can’t be that simple, can it” ? There are a lot of repercussions by simply lowering the prices of cars.
Car prices has always been an issue since the establishment of Proton where the government is seen to be protecting the car maker from competition from foreign car makers. Foreign car makers had to deal with a huge amount of tax been charged on its cars thus putting them out of reach of the average Malaysian. With all this protection, you might think Malaysian cars are inexpensive, but you’re wrong. First of all, even Malaysian cars sold abroad are more expensive than the ones sold in Malaysia. Can you believe that? Meaning, Malaysians are paying more for a Proton or Perodua than say, a Brit does.
For example, the most expensive Satria Neo Sport is sold in the UK is GBP9495 which is roughly RM 48K where the same car would cost RM60K in Malaysia. Try checking out proton.co.uk if you don’t believe me. Even the manual version is RM57K in Malaysia. So, you are probably thinking, “whats the logic in that?”. Yeah, I’m wondering the same too.
But while reducing the price of cars is an effective way to reduce household debt, it must be combined with other measures to avoid the rise of other problems as a result of reducing prices of cars. Among the problems I can easily think of are ;
- 2nd hand car market crash. Since new cars have fallen in price and 2nd hand cars are still expensive because they were bought before the price cut, no one would want to buy a 2nd hand car. Worse, since people can’t sell their old cars, they are still stuck with the high car loan repayment based on the old cars price.
- Even with high car prices of today, people are still buying cars by the hundred thousands, even imported ones, a year thanks to easy available credit. So imagine what would happen is prices are slashed to, let’s say, half price. I’d imagine the whole length of cars on the road would surpass the length of roads in KL! Traffic jams would become unbearable!
- Fuel subsidies would multiply due to the increasing number of cars on the road.
Don’t get me wrong, I’m all for lower car prices. But to avoid the bad consequences of that decision, below I am suggesting a few measures that have to be run in tandem with the reduction of car prices :
- Car prices should not be cut overnight, but gradually.
- A mechanism should be put in place to reimburse taxes that have been paid for 2nd hand cars according to their current value. In that way, the 2nd hand car market won’t be shocked.
- I believe that although car prices should be cut, people should not be encouraged to use cars too much. Fuel subsidies should be cut slowly in conjunction with the gradual car price cut. Tolls within the city should also be increase during peak hours to discourage people using cars into the rush hour city traffic, while long distance highway toll prices to be cut as planned. Tax on car parking in the city should be risen too.
- The policy should be set for public transportation to be the main transportation for the masses. Every effort should be be focused on creating an efficient public transport system that is both effective and cost effective. One that even the Singaporeans would use. Subsidies should be given to transportation companies, group and monthly tickets should be offered to make traveling public transportation more attractive for families and frequent travellers.
- Like in Singapore, different types of road tax rates should be introduced for cars, the normal road tax rate and a rate for weekend/off peak hour cars.
Of course, I am not an expert national economic planner so there are things I do not know, but the way I see it, it’s going to be a disaster if we implement the price cut per se. It’s also not that I want to burden people with extra cost of higher fuel costs and tolls etc, but in Japan, for example, where the cars are cheaper than Malaysia, the running cost are not. The parking spaces in the city costs loads. Tolls cost money too. In the end people there don’t bother buying cars since the public transportation there is super efficient and there is really no need to buy a car as a car is just a burden. In the end they can save money and spend their money on more important things.
In short, the basic idea is lowering car prices is a must, since is something that one must pay, but the other things such as fuel subsidies should be slowly cut and tolls/charges in congested areas should be risen to discourage jams in those congested areas because these are costs that the users can choose to avoid. At the same time, the revenue gained from these measures should be used towards the ultimate goal of a superb public transportation system especially buses. Simply put, people have the option to use cars and pay more cost or use public transportation and save costs. Having an option is the key.