Review of the National Automotive Policy on Car Maintenance Issues: Malaysia’s Automotive...

Review of the National Automotive Policy on Car Maintenance Issues: Malaysia’s

Autom tive Ecosystem Explained


Automotive Ecosystem Explained

MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012

MIROS Review Report

MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012MRev 02/2012

MIROS Review ReportMIROS Review ReportMIROS Review ReportMIROS Review ReportMIROS Review ReportMIROS Review Report

MALAYSIAN INSTITUTE OF ROAD SAFETY RESEARCH

Zulhaidi Mohd JawiFauziana Lamin

Abdul Rahmat Abdul ManapKhairil Anwar Abu Kasim

Fuad Abas, P Eng Wong Shaw Voon, PhD



Fuad Abas, P Eng Fuad Abas, P Eng Wong Shaw Voon, PhDWong Shaw Voon, PhDWong Shaw Voon, PhD





MIROS Review ReportMRev 02/2012




Abdul Rahmat Abdul ManapKhairil Anwar Abu Kassim

Fuad Abas, P EngWong Shaw Voon, PhD

MIROS © 2012 All Rights Reserved

Published by:

Malaysian Institute of Road Safety Research (MIROS)Lot 125-135, Jalan TKS 1, Taman Kajang Sentral,43000 Kajang, Selangor Darul Ehsan.

For citation purposes

Zulhaidi MJ, Fauziana L, Abdul Rahmat AM, Khairil Anwar AK, Fuad A, SV Wong (2012), Review of the National Automotive Policy on Car Maintenance Issues: Malaysia’s Automotive Ecosystem Explained, MRev 02/2012, Kuala Lumpur: Malaysian Institute of Road Safety Research.

Printed by: Publications Unit, MIROS

Printed by : Publication Unit, MIROSTypeface : Goudy Old StyleSize : 11 pt / 15 pt

DISCLAIMERNone of the materials provided in this report may be used, reproduced or transmitted, in any form or by any means, electronic or mechanical, including recording or the use of any information storage and retrieval system, without written permission from MIROS. Any conclusion and opinions in this report may be subject to reevaluation in the event of any forthcoming additional information or investigation.

Perpustakaan Negara Malaysia Cataloguing-in-Publication Data

Review of the national automotive policy on car maintenance issues : Malaysia’s automotive ecosystem explained / Zulhaidi Mohd Jawi ... [et al.](MIROS review report MRev 02/2012)Bibliography: p. 30ISBN 978-967-5967-31-31. Automobile Industry and trade--Government policy--Malaysia.2. Automobile--Malaysia--Maintenance and repair. I. Zulhaidi Mohd Jawi.II. Series.629.28722

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MRev 02/2012Review of the National Automotive Policy on Car Maintenance Issues : Malaysia’s Automotive Ecosytem Explained

Contents

List of Terms, Acronyms and Abbreviations vList of Tables viiiList of Figures ixAcknowledgement xiAbstract xiii

1. Introduction 1 1.1. National Automotive Policy 1 1.2. Scope of the Discussion 1 1.3. Objective of the Study 2 1.4. Materials and Method 3

2. A Look into Car Ownership in Malaysia 4 2.1. Private Cars in Malaysia 4 2.2. Car Ownership 5

3. Roadworthiness and Car Maintenance 5 3.1. Preventive Maintenance 6 3.2. Corrective Maintenance 6 3.3. Predictive Maintenance 7

4. Malaysia’s Automotive Ecosystem – Car 7 4.1. Product Life Cycle 7 4.2. Source of Vehicle 8 4.2.1. Foreign OEMs 9 4.2.2 Local OEMs 10 4.2.3. Used car market 11 4.3. Purchasing Scheme 12 4.4. Ownership Cost 12 4.4.1. Trip cost 13 4.4.2. Legal cost 13 4.4.3. Risk cost 14 4.4.4. Aftermarket cost 14 4.4.5. Car ownership overview – Cost and maintenance 15

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Review of the National Automotive Policy on Car Maintenance Issues : Malaysia’s Automotive Ecosytem ExplainedMRev 02/2012

4.5. Vehicle End-of-Life (ELV) 16 4.6. The Automotive Ecosystem 17 5. Car Maintenance Issues with Regard to Users 19 5.1. Car Users’ Economic Factors 19 5.1.1. Choice of car in the market 19 5.1.2. Cost of maintenance services 20 5.2. The Availability of Inappropriate Automotive Parts Resources 20 5.2.1. What the market has to offer 20 5.2.2. Substandard/fake products 21 5.2.3. Less popular and aged/antique cars 21 5.3. Car Users’ Knowledge and Awareness 21 6. Challenges: NAP vs. Status Quo 22 6.1. A Look into “Segment E: Efforts for Increased Safety” in NAP 23 6.2. Challenges Waiting for the Implementation of “Used Parts Measure” in NAP 25 6.2.1. Car ownership costing – Economic burden 25 6.2.2. The status quo of the automotive ecosystem as a barrier 26 6.2.3. The seemingly incomplete loop 27 6.2.4. Concerted effort among the government agencies 27 6.3. Future Research 28

7. Conclusion and Recommendation 28

References 30

Appendix A 34Appendix B 35Appendix C 36

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List of Terms, Acronyms and Abbreviations

AP Approved Permit

ADF Automotive Development Fund

ASEAN Association of Southeast Asian Nations

CBU Completely Built-up

CDL Competence Driving License

CKD Completely Knocked Down

CM Corrective Maintenance

DIY Do-It-Yourself

ELV End-of-Life Vehicle

EU European Union

FLM Full Local Manufacture

FTA Free Trade Agreement

HGV Heavy Goods Vehicle

IMP3 The Third Industrial Master Plan

IAF Industrial Adjustment Fund

ITA Investment Tax Allowance

KeTTHA Kementerian Tenaga, Teknologi Hijau dan AirMinistry of Energy, Green Technology and Water

KPDNKK/MDTCC Kementerian Perdagangan Dalam Negeri, Koperasi dan Kepenggunaan Ministry of Domestic Trade, Co-operatives and Consumerism

JKDM/RMC Jabatan Kastam Diraja MalaysiaRoyal Malaysian Customs

JKJR/RSD Jabatan Keselamatan Jalan RayaRoad Safety Department

LKM Lesen Kenderaan MotorMotor Vehicle License

MATRADE Malaysian External Trade Development Corporation

MC Mitsubishi Corporation

MFN Most Favoured Nation

MIDA Malaysian Industrial Development Authority

MIL Malfunction Indicator Light

MIROS Malaysian Institute of Road Safety Research

MITI Ministry of International Trade and IndustryKementerian Perdagangan Antarabangsa dan Industri

ML Manufacturing License

MMC Mitsubishi Motor Corporation

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MOSTI Ministry of Science, Technology and InnovationKementerian Sains, Teknologi dan Inovasi

MOT Ministry of TransportKementerian Pengangkutan

MOF Ministry of FinanceKementerian Kewangan

MPV Multi-Purpose Vehicle

MVA Motor-Vehicle Accident

NAP National Automotive Policy

NCB/NCD No Claims Bonus/No Claims Discount

NRE Ministry of Natural Resources and EnvironmentKementerian Sumber Asli dan Alam Sekitar

OEM Original Equipment Manufacturer

PdM Predictive Maintenance

PM Preventive Maintenance

PS Pioneer Status

R&D Research and Development

REM Replacement Equipment Manufacturer

RON Research Octane Number

RMP/PDRM Royal Malaysia PolicePolis Diraja Malaysia

RTD/JPJ Road Transport DepartmentJabatan Pengangkutan Jalan

SME Small and Medium Enterprise

SUV Sports Utility Vehicle

TIP Total Industry Production

TIV Total Industry Volume

VSB Vehicle Safety and Biomechanics Research Centre (MIROS)

VTA Vehicle Type Approval

WTO World Trade Organization

Notes:

1. The names of some government’s ministries and agencies are available in both English and Bahasa Malaysia versions. The authors had tried their best to provide the names in both languages; however, the abbreviations that have been chosen and primarily used in the report are merely based on the authors’ discretion.

2. Some of the terms featured in this report are colloquial or domestic terms that are widely used in the country. Appropriate footnotes or descriptions are provided in the report for these terms:

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Term Equivalent term in Bahasa Malaysia

Authorised shop Wakil servis

Half-cut car Kereta potong/kereta sambung

Half-cut shop Kedai potong

Re-con/recon -

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Page

List of Tables

Table 1 Ownership cost 13Table 2 Measures in National Automotive Policy 22Table A1 Objectives of National Automotive (NAP) Policy 34Table A2 Objectives of National Automotive (NAP) Policy Review 34Table B1 Vehicle types in EU directives 35

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List of Figures

Figure 1 Life cycle of a product 8Figure 2 Automotive ecosystem (simplified) 8Figure 3 Source of car in Malaysian market 9Figure 4 Ownership costs and maintenance supply 16Figure 5 Automotive ecosystem in Malaysia 18Figure 6 Mapping of NAP measures in Malaysia’s automotive ecosystem 24

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Acknowledgement

The authors would like to express their heartfelt gratitude to all who had given support, interest and ideas during the discussion as well as during the report writing. Also, we take this opportunity to convey our sincere thanks to the former Director-General of MIROS, Prof. Dr. Ahmad Farhan Mohd Sadullah, for his guidance and support towards the completion of this report.

Special mention goes out to:

Ministry of Transport (MOT)Rohaini Mohd Yusof – Under Secretary, Land DivisionVeejendran Ramdas – Principal Assistant Secretary, Road Transport UnitSiti Nooraznie Abdul Rahim – Assistant Secretary 2, Road Transport Unit

Jabatan Keselamatan Jalan Raya (JKJR)Sahipulhijaiman Shaharuddin – Bahagian Dasar dan Kemajuan

Malaysia Automotive Institute (MAI)Mohamad Madani Sahari – Chief Executive Officer, MAIHazrina Hassan Khalep – Strategic Research

Malaysian Institute of Road Safety Research (MIROS)Sharifah Allyana Syed Abd Rahim – Research Officer, ADSAHizal Hanis Hashim – Research Officer, ADSAAzhar Hamzah – Research Officer, CRASEMohd Syazwan Solah – Research Officer, CRASEMohd Hafzi Md Isa – Research Officer, CRASE

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Abstract

The objective of this study is to develop a conceptual model of the Malaysian automotive ecosystem with special reference to car maintenance issues. The methodology of the study is separated into two; a series of focus group discussions and extensive literature reviews. Focus group discussions were conducted as a precursor to the study. The aim of these discussions was to gather information on outstanding issues related to the currently reviewed National Automotive Policy (NAP) measures, particularly with regard to the NAP measure No. 12 – “Gradual phasing-out of imported used parts and components”. The discussions involved internal discussions within MIROS and also external discussions involving representatives from other related ministries/agencies such as MOT, MITI, MOSTI and KPDNKK. Extensive literature reviews included peer-reviewed journals, proceedings, published and unpublished reports from the web, as well as news and automotive web portals. Furthermore, 16 published reports, seven peer-reviewed journals and eight web-based reports/articles were referred to for this analysis. A conceptual model of the domestic automotive ecosystem is proposed in this paper. The economic model and implication, challenges of implementing NAP measures and relevant future research are discussed within the framework of this proposed model.

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1. Introduction

This report draws heavily from a group discussion on “vehicle maintenance issues” at the Malaysian Institute of Road Safety Research (MIROS) involving research officers1 from the Vehicle Safety and Biomechanics Research Centre (VSB). The team has been formed at the VSB level in order to support the Ministry of Transport (MOT) regarding the implementation of the National Automotive Policy’s (NAP) measures, which have been reviewed by the Ministry of International Trade and Industry (MITI) (MITI 2009). The Ministry of Transport is one of the ministries in the Malaysian government that is heavily involved in the implementation of previous NAP measures and also in the currently-reviewed policies.

1.1. National Automotive Policy

The National Automotive Policy (NAP) was first introduced back in 2006 by the Ministry of International Trade and Industry (MITI) as a guide in strengthening the automotive sector under the Third Industrial Master Plan (IMP3) 2006–2020 (MITI 2009; MIDA 2010). The measures in NAP, as for the previous and recent release, mainly focus on the well-being of the automotive sector in Malaysia in terms of competitiveness (protective measures for domestic ventures), industry expansion, Bumiputera2 participation in the industry, and consumers’ interests (Table A1 and Table A2 in Appendix A) (Prime Minister’s Department 2005; MIDA 2010).

1.2. Scope of the Discussion

In this report, the scope regarding maintenance issues had been narrowed down to matters relating to passenger vehicles segment, as described in the following.i. Passenger vehicles (four-wheelers) include cars, multi-purpose vehicles

(MPVs), and Sports Utility Vehicles (SUVs). However, whenever the term “car/cars” is used in this report, it also refers to all types of passenger vehicles

1 From here will also be referred to as “the authors” or “the team”.2 The term Bumiputera denotes ethnic Malays of Muslim religion and indigenous inhabitants of East and

West Malaysia (Mohd Rosli 2006).

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mentioned above. In terms of division of vehicles, the abovementioned passenger vehicles are in the M1 group (e.g. In EU directives as mentioned in SWOV (2007) – Table B1 in Appendix B).

ii. Issues on motorcycle—despite the fact that this mode of transport is the largest population of registered motorised vehicles in the country—require a separate discussion since the relationship between its production and safety maintenance is quite different as compared to that of cars. This can be explained by the concerns on the vehicle regulations; safety design and construction (roadworthiness and crashworthiness); vehicle maintenance routine during the usage term; and also the interaction of motorcycle in motor-vehicle accident (MVA) in terms of crash configuration, occupant protection and injury biomechanics.

iii. Nevertheless, the content/flow/relevancy of this discussion may also be applied/true for other type of vehicles (other than M1 including motorcycle) especially when it comes to discussing the National Automotive Policy (NAP) as a whole.

1.3. Objective of the Study

The general objective of this study is to review the automotive ecosystem in Malaysia in order to explain car maintenance issues and other safety concerns; so that it can help understand the subject matter of the measures in the currently reviewed National Automotive Policy (NAP).

The term “ecosystem”, despite originating and being widely used in the ecology field, is used in this report in order to represent the interaction between the industry and users/consumers in the life cycle of cars. In addition, the term “automotive ecosystem” has also been used in other reports of similar focus such as IBM Global Business Services’ Report – “Automotive 2020: Clarity beyond the chaos” (Sanjay Rishi et al. 2008).

Specifically, this report will explore and establish the issue based on the following topics.i. Private passenger vehicles in Malaysia in terms of production and usage/

ownership.

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ii. Roadworthiness and car maintenance.iii. Malaysia’s automotive ecosystem in a conceptual model.iv. Issues of car maintenance in terms of cost, knowledge and supply of parts.v. Challenges posed by the “status quo” to NAP.vi. Future/potential research.

1.4. Materials and Method

A major part of this report was derived from a series of discussions and extensive literature review by the authors. For the literature search, the key words used were, among others, “automotive maintenance”, “automotive parts failure”, “vehicle ownership”, and many others. The team has referred to the following categories of materials during the study.i. Peer-reviewed journals.ii. Conference proceedings.iii. Reports – published and unpublished; including reports that are available

on the web.iv. News – printed as well as web-based news.v. Web portals – automotive and economic/business.

In addition, the participation of the authors as MIROS’ representatives in several meetings held at different ministries with regard to NAP implementation (i.e. at MOT, MITI, MOSTI3 and KPDNKK4) had also contributed to the understanding of the overall automotive ecosystem, in terms of the automotive industry background, external and internal trade, enforcement, and consumer issues. The team was then able to produce a conceptual model of the automotive ecosystem in Malaysia; the car maintenance issues have then been discussed within the said framework.

3 Ministry of Science, Technology and Innovation or Kementerian Sains, Teknologi dan Inovasi.4 Kementerian Perdagangan Dalam Negeri, Koperasi dan Kepenggunaan or Ministry of Domestic Trade, Co-

operatives and Consumerism.

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2. A Look into Car Ownership in Malaysia

2.1. Private Cars in Malaysia

It is evident that road transport dominates Malaysia’s transportation sector, whereby the road network covers 96% of the economic activities for transporting goods and passengers (Judin Abdul Karim 2008). On top of that, the share of the passenger sector is further divided into private cars and public transports. The former has the biggest share with 65%, while the latter takes up the remaining 30% (Judin Abdul Karim 2008). On another note, a public survey conducted by Abdalla et al. (2007) has found out that local road users have high preference for the use of their personal vehicles rather than public transportation due to the convenience factor. This factor could be one of the reasons that contribute to the fact that vehicle ownership has considerably increased over the last decade (Radin Umar 2007).

A high demand of private vehicles may also explain the encouraging scenarios in domestic automotive industry. The domestic motor vehicle market represents approximately 30% of the total demand in the five largest ASEAN economies—Indonesia, Malaysia, the Philippines, Singapore and Thailand (Li Wei et al. 2008). The production of vehicles5, as observed in the last 10 years, achieved an average of 400,000 vehicles per year with approximately 75% from that figure being passenger vehicles (Lily Amelia et al. 2009).

Furthermore, vehicle sales in Malaysia are dominated by local car manufacturers by virtue of government policies that protect the local automotive industry i.e. via tariff and non-tariff barriers (Mohd Rosli 2006). For instance, major local car manufacturers in Malaysia—Proton, Perodua and Naza—had grabbed around 60% of the market share6 in 2007 (Lily Amelia et al. 2009). Also, the development of the domestic automotive industry has helped the growth of the related industries, including Small and Medium Enterprises (SMEs) as component manufacturers or sub-assemblies.

5 Total Industry Production or TIP.6 Total Industry Volume or TIV.

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2.2. Car Ownership

The life cycle of a car, likewise other products, will reach the usage stage after going through the production stage. In the usage stage, it will be used for various purposes and in various driving conditions. In that period of “car ownership”, an owner of a car is supposed to bear the cost of travels as well as its maintenance cost, so that it will always be safe, reliable and roadworthy.

Based on the fact that Malaysia does not only produce cars but also manufacture automotive components (MIDA 2010), local car owners should not face any difficulties in acquiring aftermarket products. These products that include vehicle parts, chemicals and accessories should be easily accessible from the market and also be priced relatively lower than imported products. However, the issues of car maintenance do not only revolve around the sources of the aftermarket products, since the status quo of Malaysia’s automotive ecosystem suggests that many gaps still need to be addressed.

3. Roadworthiness and Car Maintenance

Vehicle maintenance is one of the major concerns in road safety as it can prevent mishaps due to defects in a car’s roadworthiness. Poor vehicle maintenance may not just pose dangers to the owners/drivers and their passengers, but also to the safety of other road users as it could be a primary reason for a road accident to occur.

Roadworthiness, as elaborated in several publications (e.g. VOSA 2008; NTC 1995; Rechnitzer et al. 2000), gives an idea that a vehicle is fit according to accepted standards prior to use on the open road. Thus, it is important to ensure that a car is well-maintained in order to keep its roadworthiness as good as when it passed the quality inspection at the assembly line. This is certainly far from ideal since all car components and the overall system will be degraded over time due to use and many other factors. That should explain

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why vehicle maintenance, which includes preventive, corrective and predictive maintenance, becomes important routines in the ownership period until a car hypothetically reaches its end-of-life (ELV) stage after 10 to 15 years7.

3.1. Preventive Maintenance

Periodic or Preventive Maintenance (PM) is conducted to keep car systems and components in working order, as well as to extend their lives.

This routine, among others, include:i. changing engine lubricant after certain recommended kilometre-age (e.g.

5,000 km);ii. replacing the timing belt (e.g. 100,000 km);iii. performing tyre rotation (e.g. every six months or 10,000 km); and iv. changing the transmission fluid (e.g. 40,000 km).

3.2. Corrective Maintenance

Reactive or Corrective Maintenance (CM), or usually referred to as “repair”, is conducted to restore the original functionality of the parts, subsystems, or systems in a car.

Due to wear-and-tear, signs of damages or road accidents, car owners may react to the situation by:i. Repairing/servicing the existing component/system; or Certain components/systems are serviceable, or can be fixed.ii. Replacing the existing component/system. Replacement can be considered as compulsory if damage/failure involves

critical parts, sub-systems or major systems.

There are perhaps a number of car owners who may not react to the conditions mentioned above, however, that can only be appropriate if the damages do not involve any critical areas, or involves only cosmetic damages.

7 Range of car age for ELV as mentioned by Lily Amelia et al. (2009); Note that the of ELV year differs between countries.

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3.3. Predictive Maintenance

Predictive Maintenance (PdM) is an advance stage in maintenance practice whereby different tools are used to detect any tendency towards failure, and necessary work will be carried out once any irregularities are detected (Leona 2007). For example, a technician will analyse an oil sample from the previous usage to detect the presence of bearing material, or perform a scan to view data parameters even when the malfunction indicator light (MIL) is not lit.

Predictive maintenance (PdM) is perhaps less popular due to its availability and cost. PdM requires costly equipment and trainings, making it an expensive investment to car workshop owners and this cost will be passed on to the consumers (Leona 2007).

4. Malaysia’s Automotive Ecosystem – Car

4.1. Product Life Cycle

A product will go through several stages in its life cycle, as shown in Figure 1 (Li Wei et al. 2008). For the purpose of this discussion, the first three stages—design, manufacturing and transportation—are grouped into the cluster of the “source of vehicle”. The vehicle is then made available in the market as a brand new item. A vehicle is then “handed over” to the user (owner) after purchase is made to enter the usage stage or “vehicle ownership”. A vehicle will arrive at its end-of-life (ELV) stage due to various reasons, and at this stage a retired vehicle is ideally required to be properly disposed through certain processes.

In a broader sense, the automotive ecosystem involves two big groups of stakeholders—the industry and the user. The industry governs the whole automotive ecosystem while the user becomes a subset in the ecosystem as depicted in Figure 2.

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4.2. Source of Vehicle

The car market can be divided into two segments—new and used. In the Malaysian market, new cars can be distinguished according to the status of their local or foreign original equipment manufacturers (OEMs). Furthermore, cars produced by foreign OEMs can be further classified according to their completion of manufacturing place (local or foreign assembly; fully or partially).

Therefore, based on the abovementioned fact, new cars will carry any of these statuses (e.g. Lily Amelia et al. 2009; Andrew and Shobhana 1989): i. completely built-up (CBU) for foreign imported unit; orii. completely knocked-down (CKD) for locally assembled unit, by either

local or foreign OEMs; oriii. full local manufactured unit – will be referred to as “FLM”.

Figure 1 Life cycle of a product (Source: Li Wei et al. 2008)

Figure 2 Automotive ecosystem (simplified)

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The labels coined for local and foreign makes are largely influenced by the government automotive policies. Consequently, these policies will be reflected in the pricing of cars in the market, that is the price will be based on the tax imposed on a car according to its status.

On the other hand, the used car segment consists of local units and imported units (or can be referred to as refurbished unit8). Local used units are cars that are sold either by the original owners or through used-car dealers, and imported refurbished cars are those brought to Malaysia from other countries. In terms of registration, local used units will bear the same registration code (plate number) upon the change of ownership, but imported used units will be registered with a new (current) registration code.

The overall view of the “source of vehicle” is depicted in Figure 3.

Figure 3 Source of car in Malaysian market

8 Refurbished cars are popularly known to locals as re-conditioned or colloquially “re-con” unit.

4.2.1. Foreign OEMs

For general understanding, a car would be better recognised by its brand name (car make; OEM) rather than the company’s profile i.e. the actual business structure behind it. As a result of business expansion globally, certain OEMs have gone through several ownerships through merges or takeovers. Thus, certain automotive companies could no longer be purely associated with their respective original home countries. That is why it has become easier to

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recognise a car by its make (or badge), since it is rarely changed upon a transfer of company ownership. However, for the purpose of this discussion, the original home countries of the OEMs are referred just to be in line with the motivation of the whole discussion.

Foreign car makers that have made their way into the Malaysian market are those originating from Asia (e.g. Japan, Korea, China, and India), Europe (e.g. Germany, Britain, Sweden, and France) and the United States. They offer a wide range of car types and specifications: from economical compacts to the more classy sports cars. These cars are available in the market as CBU or CKD units.

The Japanese OEMs, according to the trend of vehicle sales (Total Industry Volume – TIV) in the current and past years, have the largest share in foreign OEMs’ TIV. The top three Japanese OEMs in Malaysia comprise Toyota, Honda and Nissan, with total sales of 129,040 units in 2007, which is equivalent to 26.4% of the total TIV, or 69% of all foreign OEMs’ TIV for that year. The other Asian OEMs, namely Daihatsu, Mitsubishi, Hyundai and Kia, have recorded sales less than 1% each in 2007 (Lily Amelia et al. 2009).

The European OEMs, on the other hand, typically offer the high-end car segment to customers, with cars that are usually priced at over the 100,000 ringgit9 line and some models are worth even more than one million ringgit per unit. The popular makes, among others, include Mercedes, BMW, Volkswagen, Volvo, MINI, and Porsche.

4.2.2. Local OEMs

Bloomfield (1978), as quoted in a study by Andrew and Shobhana (1989), has suggested that the automotive industry of any country that originally does not produce vehicles will go through the following stages: 1) import of CBU; to2) assembly of CKD; to3) assembly of CKD with certain percentage of locally produced parts (local

content); and finally to4) producing full local manufactured unit (FLM).

9 Ringgit is the Malaysian currency with the currency code MYR.

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This progression will contribute to the country’s economy, by:i. creating employment;ii. making savings in foreign exchange;iii. stimulating local investment and creating many tiers of business (including

SMEs); andiv. enriching local professionals mainly in automotive technologies.

Andrew and Shobhana (1989) also stated that the automotive industry in the ASEAN10 region has closely conformed to the scheme that Bloomfield has mentioned. This fact is proven true for Malaysia, whereby the nation’s first OEM—Proton—has successfully gone through all the above mentioned stages after some years of operation. Proton has started in the early eighties through a partnership with the Japanese subsidiaries, Mitsubishi Corporation (MC) and Mitsubishi Motor Corporation (MMC) (Mohd Rosli 2006). Proton’s first car had adopted an established model but later has included locally manufactured parts in the car and the subsequent models. Today, Proton is a producer of FLM models such as Gen-2, Persona and Exora11. Besides Proton, Malaysia has also two other major passenger car manufacturers—Perodua and Naza. They are still in the second (CKD) or third stage (CKD with local content) in terms of car production stage as mentioned by Bloomfield (1978). For instance, Perodua has launched its MPV (Alza) in 2009 with nearly 90% of its component locally made; thus regarded as the “most Malaysian Perodua to date” (Lester Kong 2009).

4.2.3. Used car market

As mentioned previously, the used cars in Malaysia can be either local used units or imported refurbished units. Local used units are cars that are sold by the owners (may not necessarily be the first owner) by their own effort or through used-car dealers. The used car market ranges from relatively new units (based on the year of ownership; or interchangeably the date of registration) to cars that are supposed to be retired.

The market of used car in 2006, as estimated by the Used Car Dealers Association, was roughly 250,000 units (MITI 2007). Furthermore, from the latest report, the Federation of Motor and Credit Companies Association of

10 Association of Southeast Asian Nations.11 Proton Exora is claimed to be the first ever MPV to be fully developed in the country (Aqbal Hafeez et al. 2009).

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Malaysia (FMCCAM) estimated12 that the size of the used car market would reach 600,000 units in 2010, as compared to 480,000 units in 2009 (David Tan 2010).

On the other hand, from the Road Transport Department’s (RTD) record, the used car trade is believed to be one of the major contributors to approximately 1.3 million applications of vehicle ownership transfer every year (PMR 2009). Therefore, the estimation made by FMCCAM is well within the RTD’s figure. However, there is no information on the market size of local used units against the imported ones.

4.3. Purchasing Scheme

Cars are usually purchased on credit rather than cash (Banking Info 2010). For the most popular credit purchasing, or the hire-purchase scheme (HP), the banking institutions will usually be the financiers to the loan. The period of repayment (instalment) could be up to nine years or 108 months. The current practice allows ownership for both new and used cars through the HP scheme, provided that the car owner (hirer) meets all HP requirements (Banking Info 2010).

4.4. Ownership Cost

Car ownership cost is defined by two primary concerns: fixed cost and variable cost. Fixed cost for car ownership is defined as the actual price and associated taxes in a purchase such as insurance, road tax and licensing fees. Variable cost is related to costs incurred during the ownership of the car such as fuel, maintenance, parking, toll fees and other road use charges.

Therefore, car owners, in the period of ownership, should allocate a considerable portion of their income for all of these expenditures (Table 1).

12 Volume is determined by rough estimate due to unavailability of a proper monitoring system.

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Table 1 Ownership cost

Type of cost Item Fixed or variable?

Trip cost

• Fuel Variable

• Toll Variable

• Parking Variable

Legal cost

• Roadtax(LKM) Fixed; per annum

• Drivinglicense(CDL) Fixed; per annum

• Trafficviolation Variable (to users); fixed per offense

• Parkingviolation Variable (to users); fixed per offense

Risk cost

• Insurance(Car/specificpart) Fixed13; per annum

Aftermarket cost

• Maintenance(preventive,corrective, predictive)

Variable

• Retrofitting (forperformanceand/or aesthetical value)

Variable

4.4.1. Trip cost

The trip costs, which include fuel and toll, enable a car to make trips on the road. In Malaysia, the price of fuel is set to a nationwide standard price by virtue of subsidisation by the government14. Also, car owners have to pay tolls if they opt for tolled roads to avoid severe traffic congestion and to reduce travel time; and this is common for major city residents especially in the area of Klang Valley. Furthermore, drivers are charged for parking space in most cities/towns either by the local authorities or privately-owned parking lot operators.

4.4.2. Legal cost

The Road Transport Department (RTD) is the regulatory body for road transportations and is also responsible for the issuance of driving license (Competence Driving License – CDL) and motor vehicle license (Lesen Kenderaan Motor – LKM). Both CDL and LKM are subject to a renewal process after a specified period, namely on semi-annual or yearly basis, only if both the driver and vehicle are clear from any legal charges. Also, from the users’ perspective, additional costs are expected if they commit traffic or parking violations. Tickets for both types of offenses are normally issued by the traffic

13 Insured value will be discounted if one is eligible for No Claims Discount (NCD)/No Claims Bonus (NCB) (Malaysia Insurance Online 2010).

14 Subsidisation of fuel in the recent years has been reviewed several times due to the unstable global oil price; the latest measure is the differentiation between RON 95 and RON 97 petrol, with the price of RON 97 is set to float according to the latest global oil price.

14


police (RMP15), RTDs or local authorities’ enforcement officers. The CDL, LKM and traffic/parking fines are the examples of legal costs that car owners have to bear (or forfeit) during the period of ownership.

4.4.3. Risk cost

The risk cost means the cost of insurance that car owners have to bear every year according to the scheme offered by the insurer. The cost of insurance will be determined primarily from the current value of a car (insured value), and this cost will decrease as the car value depreciates over the ownership years. On top of that, the cost will be further reduced if one is eligible for No Claims Discount (NCD) over each policy renewal.

4.4.4. Aftermarket cost

The aftermarket costs consist of the cost for maintenance and retrofitting work. Maintenance, as explained earlier, includes preventive (PM), corrective (CM) and predictive (PdM).

Furthermore, the aftermarket items—in terms of parts, subsystems, or systems—come from the “new supply” and the “second-hand supply”. The new items supply can be sourced from either the Original Equipment Manufacturers16 (OEM) or Non-OEM; and they are further categorised into “locally produced” or “imported” items.

The OEMs of automotive parts are also being referred to as Replacement Equipment Manufacturers (REMs). They produce parts that are approved by the authorities (according to any/several standards) or parts that are approved by the car maker themselves (official product but not necessarily approved per locally recognised standard; “manufacturer standard”). However, the new supplies may also include substandard or fake items due to lack of control in the market.

15 The Royal Malaysia Police or Polis Diraja Malaysia.16 OEMs for parts/subsystems/systems should be distinguished from OEMs for car for the reason that the

latter produce car as a unit under its own brand name.

15


On the other hand, car owners might also be interested in amending or adding some aesthetic modification to their cars (such as new body paint and skirting) as well as altering the default specifications (engine capacity, exhaust pipe, suspension system, tyre and rim). These retrofitting works will increase the cost of ownership.

The second-hand supply can also be divided into local or imported supply. The local supplies include the parts obtained from car users (e.g. trade-in activities), vehicle theft, cars that were involved in road accidents (MVA; especially in “total loss”17 cases), confiscated cars due to legal action, and cars that are “forced” to be retired (not roadworthy).

The imported second-hand supplies are usually sourced from “half-cut” shops18. “Half-cut” refers to cars being cut into halves for the purpose of car parts salvage. For example, one may ask for certain parts from the half-unit (e.g. front-end consists of engine, radiator, transmission unit; rear-end consist of fuel tank, fuel pump, part of the exhaust system), or may buy the whole half-unit.

4.4.5. Car ownership overview – Cost and maintenance

Figure 4 gives a bigger picture of car ownership costs and the maintenance supply as explained in the previous sections.

For some reasons, cars that are supposed to be retired are not only being made the source of local second-hand spare parts but are also made available as used cars (shown in Figure 4). This unscrupulous and dangerous practice is done by connecting up two halves of a certain model19 (e.g. from total loss unit, or stolen car, or a combination of both) to be sold again with proper documentation (e.g. Foong Pek Yee et al. 2007).

17 Destruction of an asset or property to the extent that nothing of value is left, and the item cannot be repaired or rebuilt to its pre-destruction state. Some types of insurance policies pay the maximum covered amount only in cases of total loss (Source: http://www.businessdictionary.com/definition/total-loss.html)

18 Also known to locals as “kedai potong”.19 Known to locals as “kereta potong/kereta sambung”.

16


4.5. Vehicle End-of-Life (ELV)

The End-of-Life Vehicle (ELV) Directive is the European Union’s effort to ensure that the disposal of vehicles that reach their end of useful life will be optimised. In the European Union alone, it is estimated that between 8 and 9 million tonnes of waste are sourced from ELV (European Commission 2010).

The directive objectives are:i. to ensure that vehicle dismantling and recycling are more environmentally

friendly;ii. to clearly quantify the targets for reuse, recycling and recovery of vehicles

and their components; and iii. to push producers to manufacture vehicles with recyclability plan.

In developed countries, certain amounts (by weight) of ELVs are recovered such as 75% in the United States, and more than 80% in certain countries

Figure 4 Ownership costs and maintenance supply

Source of vehicle Vehicle ownership

Purchasing scheme:• Cash• Credit (Hire-purchase)

Trip cost:• Fuel• Toll• Parking

Legal cost:• Road tax• Inspection• License• Traffic

violation

Aftermarket cost:• Maintenance:

- Preventive- Corrective- Predictive

• Retrofitting

Reasons for retirement

New supply:• Part-subsystem-system:

- Approved/Official- Substandard/Fake

Imported secondhand supply Secondhand supply

Part-subsystem-system

Local secondhand supply

Trip cost:• Insurance

Not roadworthy

MVA

Legal action

Vehicle theft

17


in Europe. Proper ELV plan may help in ensuring sustainable environmental control through recycling and reuse. It could also help the maintenance of a car by reusing the parts and components that passed quality control so that they will be sold reasonably cheaper than new items.

However, Malaysia has not yet established any directive or legislation that is related to ELV to date, and the motivation among the automotive companies to benefit from the reuse of automotive components is rather low (Lily Amelia et al. 2009).

4.6. The Automotive Ecosystem

The automotive ecosystem according to the “life cycle of products” involves the industry and the users. Cars are transferred to car owners via the purchasing scheme and will supposedly return to the industry at the stage of disposal—ELV. Car owners have the options between new and used cars, as well as the status carried by the car—FLM, CKD or CBU for new units, or local/imported refurbished for used units.

Car owners are supposed to bear certain costs during the period of ownership i.e. trip, legal, risk and aftermarket costs. With regard to maintenance, let alone the retrofitting option, car owners have the freedom to choose among the sources available in the current ecosystem. Figure 5 depicts the automotive ecosystem in Malaysia, with the focus of discussion being the car ownership duration (user).

18


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Mal

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5. Car Maintenance Issues with Regard to Users

There are various reasons that may affect car maintenance attitude among the users. The problems may start at the beginning of car ownership, namely in the stage of choosing which car to be bought. The decision is very important since it will be reflected in the ownership period, and will substantially affect the cost of car maintenance.

This section will further discuss the issues of car maintenance in three main areas: i. cost – car users’ economic factors;ii. supply – availability of inappropriate automotive parts resources; andiii. knowledge – car users’ knowledge and awareness.

5.1. Car Users’ Economic Factors

5.1.1. Choice of car in the market

The cost of ownership, as depicted in the automotive ecosystem (Figure 5), starts at the users’ decision to purchase cars. The questions are:

• Do they buy the “right” car? • Aretheyfinanciallyabletocomfortablyaffordtheircarownershipcosts?

The choice of vehicle will determine the amount of money one spends in the ownership period as mentioned earlier—in terms of trip, legal, risk and aftermarket costs. For example, an imported CBU car will cost more than a CKD or FLM unit—of the same car segment and engine capacity—due to differences in automotive tariff; and this will further determine the costs for monthly instalment (for hire-purchase), insurance (value insured) and maintenance costs (imported parts).

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5.1.2. Cost of maintenance services

Car owners’ attitude towards maintenance can also be seen in their choice of maintenance services. Usually, car makers offer product warranty which includes the element of maintenance benefits (usually preventive and corrective) for certain kilometre-age or period of ownership (whichever comes first). Car owners, however, have to follow certain rules and conditions such as performing maintenance at the certified outlets20 to qualify themselves for the warranty scheme.

Car owners will probably conform to the schedule of preventive maintenance provided by the car makers during the warranty period; however, they may not do so when the warranty period ends. The question is:

• Where do the owners performmaintenance work after the warrantyperiod ends? i. Due to financial constraints and the search for more “flexibility”,

they perhaps opt for other workshops. They will have more options in acquiring parts in terms of the parts’ status (new or used; approved/official or substandard/fake) and bargaining the labour cost.

ii. Car owners may also perform basic maintenance themselves (DIY), or by hiring non-professional labour (e.g. relatives; friends) at possibly nominal or no cost.

5.2. The Availability of Inappropriate Automotive Parts Resources

5.2.1. What the market has to offer

With regard to the acquisition of car parts, subsystems or a full system, car owners have the options between new and second-hand items, as well as between approved/official and substandard/fake new items. Due to the lack of control in the market, car owners will look for a better deal in terms of cost although at the same time they are compromising quality and safety such as by buying parts from “half-cut” shops.

20 Atofficialservicecentres,orauthorisedworkshopsknownas“wakilservis”.

21


5.2.2. Substandard/fake products

Car owners also could be the victim of substandard or fake products such as engine lubricant (e.g. Harian Metro 2010), engine oil filter, and brake components (e.g. BERNAMAa 2009; Minderjeet Kaur 2009).

There are however car owners who do care about the quality of products butare “unintentionally” involved in using substandard or fake products due to fraudulent mechanics/service providers and/or lack of knowledge in identifying or distinguishing labels and/or specifications.

5.2.3. Less popular and aged/antique cars

Some of the parts/subsystems/systems for certain cars are not widely available in the market; and this usually affects less popular models especially CBU cars and old models/antique cars (e.g. BERNAMAb 2009). This is one of the factors that help sustain the half-cut enterprises. The high demand for parts/subsystems/systems for this group of cars also increases the propensity of vehicle theft (such as in Australia, as mentioned in NMVTRC (2002)).

5.3. Car Users’ Knowledge and Awareness

Poor maintenance attitude may also be caused by lack of related knowledge, which includes general knowledge of automotive (basic vehicle operations) as well as the specific needs of a particular car.

For that reason, car owners may experience the following disadvantages, namely: i. the inability to perform self-assessment on their cars;ii. falling victim to irresponsible mechanics at service centres/workshops

such as buying fake items, being charged unreasonably, etc;iii. failure to make the right decisions for maintenance work, especially in the

case of a major breakdown; andiv. failure to appreciate the importance of maintenance quality/professional

maintenance work.

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6. Challenges: NAP vs. Status Quo

It is clear that the National Automotive Policy (NAP) has been introduced mainly to strengthen the automotive industry in many aspects. In the currently reviewed NAP, there are 18 measures that are divided into seven segments as described in Table 2 (Refer Appendix C for NAP details as per MITI’s Media Release—MITI (2009)). Meanwhile, Figure 6 shows the mapping of NAP measures on Malaysia’s automotive ecosystem as discussed in the previous section (based on Figure 5). However, the introduction of the end-of-life vehicle (ELV) policy (measure No. 15 in Segment E – Table 2) received intense rejection by the public upon the announcement of the reviewed NAP and thus it has been taken off from the framework (perhaps until a more viable measure for ELV is proposed). Furthermore, the two other NAP measures – No. 2 (Segment A) and No. 13 (Segment E) in Table 2 – are directly related to Heavy Goods Vehicles (HGVs) concerns.

No. Policy measures Responsible agency/ministry

A. MANUFACTURING LICENCE: PROMOTING HIGH IMPACT SEGMENTS

1Freeze on issuance of new ML will be lifted for certain segments – effective 1 January 2010.

MITI/MIDA/MATRADE21

2The freeze on ML for reconditioning and reassembling (rebuilt) activities is maintained.

-

B. TAX/DUTY: PROMOTION OF EXPORTS OF VALUE ADDED PRODUCTS

3Tax exemption on the value of increased exports of vehicles and parts/components – effective 1 January 2010.

MOF22

4 Import duty: removal/reduction in compliance with trade agreements. MITI

5Import and excise duties for Complete Built-Up (CBU) and Complete Knocked-Down (CKD) units are maintained.

-

6Gazetted price of imported used vehicles to be addressed under declaration – effective 1 January 2010.

MOF/MITI/Customs23

C. TECHNOLOGY: PROMOTING HIGH VALUE AND GREEN TECHNOLOGY

7Better incentive for critical and high value-added parts and components production – effective 1 January 2010.

MOF/MITI/MOT

8Promotion of hybrid and electric vehicles and development of related infrastructure – effective 1 January 2010 to be commenced.

MOF/MOT/RTD/KeTTHA24

Table 2 Measures in National Automotive Policy (Rearranged/reformatted from: MITI 2009)

21 Malaysian External Trade Development Corporation.22 Ministry of Finance or Kementerian Kewangan.23 OfficiallyknownasRoyalMalaysianCustomsorJabatan Kastam Diraja Malaysia (JKDM).24 Kementerian Tenaga, Teknologi Hijau dan Air or Ministry of Energy, Green Technology and Water.

(continue)

23


No. Policy measures Responsible agency/ministry

D. SOFT LOANS/GRANTS: MEASURES TO ENHANCE COMPETITIVENESS OF PARTS/COMPONENTS MANUFACTURERS

9Soft loans/grants – continuation of Automotive Development Fund (ADF) and Industrial Adjustment Fund (IAF).

MITI/MOF

E. STANDARDS: EFFORTS FOR INCREASED SAFETY

10 Full implementation of Vehicle Type Approval (VTA) – 10th Malaysia Plan. MOT/RTD

11Gradual introduction and enforcement of mandatory standards for parts and components.

MOSTI/MOT/KPDNKK

12Gradual phasing-out of imported used parts and components – effective June 2011.

MITI/MOT

13 Gradual phasing-out of imported used commercial vehicles. MITI/MOF/Customs

14 Clear roadmap for the implementation of fuel standards. NRE25

15 Gradual introduction of end-of-life vehicle (ELV) policy. (Dropped) MOT/RTD

F. THE APPROVED PERMIT SYSTEM

16Termination of: Open AP system – 31 December 2015; Franchise AP – 31 December 2010.

MITI

17 Establishment of Bumiputera Automotive Fund – effective 1 January 2010. MOF/MITI/Customs

G. THE NATIONAL DIMENSION: A STRATEGIC PARTNERSHIP FOR PROTON

18A new strategic partnership between Proton and a globally established OEM.

MITI

6.1. A Look into “Segment E: Efforts for Increased Safety” in NAP

Car maintenance issues that have been discussed in this report are mainly related to measure No. 12 of Segment E in NAP—“Gradual phasing-out of imported used parts and components”—which is scheduled to be effective June 2011. What can be learned from this measure is that it will progressively prevent the supply of imported used/second-hand parts supply into the market (refer to Figure 5 or Figure 6) and thwart car users from opting what to them is one of their “economic” maintenance options. On the other hand, with regard to the industry, this measure can also be seen as a “booster” to catalyse high domestic demand of aftermarket products.

Nevertheless, there are several concerns that can be derived with regard to measure No. 12.i. Based on the mapping of NAP measures in Malaysia’s automotive

ecosystem with regard to maintenance work (Figure 6), the used or second-

25 Ministry of Natural Resources and Environment or Kementerian Sumber Asli dan Alam Sekitar.

24


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25


hand parts/subsystems/systems may also be sourced locally as explained earlier—from users (e.g. trade-in activities), vehicle theft, items salvaged from cars involved in road accidents, cars that are confiscated due to legal action, and retired cars. Therefore, in the view of car maintenance attitude towards safety, this measure only prevents the importation of used parts.

ii. Without imported supply, it is expected that the demand for local used

supply will rise since there should be a group of users who are still looking for this more economical option. Also, in connection with cheap parts, car users may also look for substandard/fake aftermarket products.

iii. A worse situation is that cases of vehicle theft may increase especially when the price of approved/official parts is relatively high.

6.2. Challenges Waiting for the Implementation of “Used Parts Measure” in NAP

Based on the abovementioned concerns, the implementation of this measure will face significant hurdles not only in the industry but also to the objective of making the automotive consumerism “healthier”.

6.2.1. Car ownership costing – Economic burden

Due to the importance of car ownership to the transport industry, environment, health and economic growth, car ownership costing has always been subjected to intense research in other countries over many years. Early research on car ownership dealt with car ownership at national, regional and local levels. Next, the area of study is expanded to how car ownership is affecting the socio-economy of the society particularly the household income. The most recent study on car ownership dealt with the influence of consumer attitudes and lifestyles on their choice of car type.

• Ifthenewregulationisimplemented,willthisincreasethecostofcarownership to the society?

26


As explained previously, measure No. 12 will ultimately put an end to one of the used part supplyies to the users. However, there is no guarantee that the price of local new parts (in the case of approved or official parts only) will be within a reasonable or affordable range due to many factors such as the volume needed to bring down the market price (economies of scale). If that is the case, users will still presumably favour the other economical maintenance options, local second-hand parts as well as substandard/fake items in the market. Thus, this will benefit neither the industry nor the users.

However, there is no specific study that explains the price of new parts especially those produced locally, in that whether they are priced according to an acceptable margin or being speculated at the end of the market chain (to users) by virtue of the “cheap” option provided by the imported used supply.

6.2.2. The status quo of the automotive ecosystem as a barrier

In terms of market attraction, the automotive ecosystem in the country today can also be viewed as the barrier towards encouraging best maintenance attitude among the users. First of all, the price of cars in the market may be one of the major influencing factors e.g. the price of cars is disproportionately higher than the income level and cost of living. Consequently, a majority of car users buy their cars through the hire-purchase scheme and perhaps a considerable portion of them opt for a long repayment period e.g. up to nine years. If that is the case, the age of the car at the end of the HP contract will be at the ELV stage.

Furthermore, this factor will also deter users from acquiring new cars due to the long repayment period as well as significant depreciation of the car value. This will force them to keep their cars longer than they should that presumably require a lot of maintenance work at the latter stage of the HP contract.

Furthermore, the current ecosystem also allows refurbished cars to be imported from other countries and still they are usually priced considerably high (refer Section 4.2). If one buys this type of car using the higher purchase scheme, there will be a high chance that the owner will keep a car that is more than 10 years

27


of age (years of ownership at the origin country plus the local usage period); and thus promote this “unhealthy” trend of car ownership. Nevertheless, this business approach is scheduled to be terminated in 2015 according to the new policies in NAP (measure No. 16 in Segment F – Table 2).

6.2.3. The seemingly incomplete loop

The currently reviewed NAP really needs the support at the end of the cars’ life cycle, which is the establishment of ELV directive and policies in the country. Through a proper ELV framework, both the industry and users can benefit from the three R’s—reuse,recycleand recovery. A viable and successful ELV initiative will not only solve car maintenance issues with regards to used parts (reliance on heavy maintenance works) but will also benefit the industry in terms of the users’ inclination to buy new cars.

6.2.4. Concerted effort among the government agencies

The other challenge faced in the implementation of NAP, which is spearheaded by MITI, is the organisation and commitment of the other government ministries and their agencies.

In total, there are seven ministries (including MITI) and their agencies that are involved in making the currently reviewed NAP a success: i. MITI (MAI, MIDA, MATRADE);ii. MOF (Customs);iii. MOT (RTD, JKJR26, MIROS);iv. MOSTI;v. KPDNKK (MDTCC)vi. NRE; andvii. KeTTHA.

26 Jabatan Keselamatan Jalan Raya or Road Safety Department.

28


6.3. Future Research

To date, there has been no local study that looks into the causal effect of car ownership costs to economic burden. A study by Dargay (2002) however had sought to examine the factors determining car ownership pattern for households in rural and urban areas. The result suggests that general increases in the costs of car ownership would pose a considerable economic burden for rural households i.e. car dependency by rural households due to the lack of public transportation in the rural areas—which may not be true for some countries such as Malaysia.

From another perspective, users can also be categorised according to their financial strength since this factor affects their attitude towards car maintenance to a large degree. Those who cannot afford approved/official parts will always be “forced” to purchase substandard/fake new items or second-hand parts.

Nevertheless, more research needs to be undertaken in order to explain both the rural and urban user issues as well as the attitude of maintenance among the users according to their financial ability and car ownership pattern among the households. Furthermore, studies must be also focused on the social effects if the implementation of measure No. 12 manages to reach its peak i.e. blanket ban to all used parts importation.

Last but not the least, a comprehensive study on the affected industry also need to be done in order to explain how big is the business in terms of its revenue (imported used parts and the entire used parts business), and to the existing labour force related to the business; its skilled and semi-skilled workers.

7. Conclusion and Recommendation

This review has gone through the life cycle of a car from the source (industry) to the usage stage (car ownership) and finally at the supposedly available ELV initiatives. This review has also looked into the main focus of the discussion;

29


vehicle maintenance issues that have been narrowed down to only those related to cars, and its relation to one of the NAP measures—the gradual phasing out of imported used parts and components. Referring to the discussion of car maintenance issues as well as the whole automotive ecosystem (Figure 5 and Figure 6), the introduced measures in NAP will face stern drawbacks if not properly executed. Thus, a “win-win” situation must be created between the industry and most importantly, the users.

Additionally, the relevant parties should think about the formula to ease the burden of car ownership that includes the price of cars (local or imported), price of automotive parts and other related costs. Presumably, the attitude among car owners regarding vehicle maintenance is highly influenced by their financial strength as well as their location (urban or rural). A proper framework in executing the NAP measures i.e. based on the economic/industry, society, and enforcement strategies will in the end, benefit both the industry and the users.

Last but not least, more efforts also need to be undertaken to educate car owners and increase their knowledge and awareness on the best car maintenance practices.

30


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Appendix A

Table A1 Objectives of National Automotive (NAP) Policy (Prime Minister’s Department 2005)

NAP Objectives

1To promote a competitive and viable automotive sector, in particular national car manufacturers.

2To become a regional hub for manufacturing, assembly and distribution of automotive vehicles.

3 To enhance value-added and local capabilities in the automotive sector.

4To promote export-oriented Malaysian manufacturers as well as component and parts vendors.

5To promote competitive and broad-based Bumiputera participation in vehicle manufacturing, distribution and importation as well as in component and parts manufacturing.

Table A2 Objectives of National Automotive (NAP) Policy Review (MIDA 2010)

Reviewed NAP Objectives

1Ensuring the orderly development as well as the long term competitiveness and capability of the domestic automotive industry as a result of market liberalisation.

2Creating conducive environment to attract new investments and expand existing opportunities.

3Enhancing the competitiveness of national car manufacturers through strategic partnership.

4Fostering the development of the latest and more sophisticated technology in the domestic automotive industry.

5 Developing high value-added manufacturing activities in niche areas.

6 Enhancing Bumiputera participation in the domestic automotive industry.

7Improving safety standards for consumers and promoting environment-friendly opportunities.

8 Enhancing the implementation of current NAP policy instruments.

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Appendix B

Table B1 Vehicle types in EU directives (SWOV 2007)

Type Designed to transport Mass Motor vehicle type

M1 Max. 9 people ≤ 3,500 kg Car

M2 More than 9 people ≤ 5,000 kg Minibus

M3 More than 9 people > 5,000 kg Bus

N1 Freight ≤ 3,500 kg Van

N2 Freight 3,500–12,000 kg Light lorry

N3 Freight > 12,000 kg Heavy lorry

Others:

L Motor vehicles with two or three wheels.

T Tractors in agriculture and forestry; some are permitted to be on the road.

O Trailers and semi-trailers.

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Appendix C

NEWPOLICIESANDMEASURESINTHENAPREVIEW

(Rearranged/reformatted from: MITI (2009))

Several new policies and measures, covering licensing, duties, incentives, technology, environment, safety, standards and regulations are being introduced under the NAP review, with the aim of fostering a more competitive industry and freer market. The new policies include the following.

A. MANUFACTURINGLICENCE:PROMOTINGHIGHIMPACTSEGMENTS

The current freeze on issuance of new Manufacturing Licence (ML) will be lifted for several industry segments which are considered strategic and have a high impact on Malaysia’s economy. This liberalisation will be instrumental in producing higher margins, business-related vehicles, and more environment-friendly vehicles.

Current measures:• Freeze on new ML due to excess capacity.• Vehicle assemblers are allowed to make available their excess capacity to

third parties (contract assembly) to assemble new makes or models on the condition that the models do not directly compete with those produced by national car manufacturers.

New measures:• Specifically, the new policy will lift the freeze of new ML on:

luxury passenger vehicles with engine capacity of 1,800 c.c and above and on-the-road price of no less than RM150,000;

pick-up trucks and commercial vehicles;hybrid and electric vehicles; andmotorcycles with engine capacity of 200 c.c and above.

• TherewillbenoequityconditionsimposedonML.

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• Thecurrentpolicyoncontractassemblyisbeingmaintainedtoencourageutilisation of existing excess capacity.

• ThecurrentpolicyonthefreezeofMLforreconditioningandreassembling(rebuilding) activities is maintained.

B. TAX/DUTY:PROMOTIONOFEXPORTSOFVALUEADDEDPRODUCTS

I. Tax Exemption on the Value of Increased Exports of Vehicles and Parts/Components

The NAP Review introduces substantially higher tax exemptions for exported goods with a significant portion of value added in Malaysia. This reflects the country’s goal to expand the amount and quality of exports. A tax exemption on statutory income for all sectors is offered based on the percentage increase in its value added.

Current measures:• Tax exemption on statutory income for all sectors is given based on

percentage increase in the value of exports provided the products attain the following value-added criteria:10% of the value of increased exports is given to manufacturers

provided the goods attain at least 30% value added; and15% of the value of increased exports is given to manufacturers

provided the goods attain at least 50% value added.

New measures:• The tax exemption on statutory income for manufacturers in the automotive

industry is enhanced:From 10 to 30% of the value of increased exports, provided the goods

attain at least 30% value added; andFrom 15 to 50% of the value of increased exports provided that the

goods attain at least 50% value added.

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II. Import Duty: Removal/Reduction in Compliance with Trade Agreements

It is MITI’s priority to promote free and prosperous international trade. Under the Free Trade Agreements (FTAs), Malaysia is committed to gradually remove or reduce its import duty. The automotive sector will meet the national commitment to the various FTAs.

III. Import and Excise Duty for Complete Built-Up (CBU) andComplete Knocked-Down (CKD)

The rates of import duty (Most Favoured Nation – MFN) and excise duty for CBU and CKD vehicles are maintained.

IV. Gazette Price of Imported Used Vehicles to Address underDeclaration

Currently, only the price for new imported CBU motor vehicles is gazetted for the purpose of duty computation. The NAP Review will establish the gazette price for imported used CBU motor vehicles as well.

C. TECHNOLOGY:PROMOTINGHIGHVALUEANDGREENTECHNOLOGY

I. Better Incentives for Critical and High Value-added Parts andComponents Production

Promoting the production of critical and high value-added parts and components is a crucial scheme to increase the country’s human and technological capital and contribute to long-term development goals. Companies manufacturing transmission systems, brake systems, airbag systems and steering systems are eligible for better fiscal incentives i.e. Pioneer Status (PS) of 100% fiscal deduction for 10 years or Investment Tax Allowance (ITA) of 100% for five years.

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II. PromoteHybridandElectricVehiclesandDevelopmentofRelatedInfrastructure

Investing in the development of hybrid and electric vehicles bears the benefits of the acquisition of new, high end technology and the promotion of a more sustainable energy policy. A comprehensive mix of fiscal incentives, duty exemptions and customised training and R&D grants was included in the NAP Review to maximise returns on investment.

Current measures:Under the 2009 Budget, imports of CBU hybrid cars are:• Exempted from import duty; and• Granted 50% excise duty exemption.

Both exemptions are given for a period of two years until 31 December 2010 to promote assembly that is done locally.

Currently, the infrastructure for electric vehicles is not available in the country.

New measures:• Investments in the assembly or manufacture of hybrid and electric vehicles

will be granted:100% ITA or PS for a period of 10 years;Customised training and R&D grants in addition to the existing grants;50% exemption on excise duty for locally assembled/manufactured

vehicles or provision of grant under the Industrial Adjustment Fund (IAF); PS of 100% for 10 years or ITA of 100% for five years for manufacture

of selected critical components supporting hybrid and electric vehicles, such as:i. electric motors;ii. electric batteries;iii. battery management system;iv. inverters;v. electric air conditioning; andvi. air compressors;

Additional attractive, customised incentives will be considered based on proposed activities.

• The Ministry of Energy, Green Technology and Water will draw up a roadmap to develop the infrastructure for electric vehicles.

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D. SOFTLOANS/GRANTS:MEASURESTOENHANCECOMPETITIVENESS OF PARTS/COMPONENTS MANUFACTURERS

To improve competitiveness of parts and component manufacturers and to enhance their contribution to the automotive industry and economy, the Automotive Development Fund (ADF) and Industrial Adjustment Fund (IAF) will be continued.

E. STANDARDS:EFFORTSFORINCREASEDSAFETY

I. Full Implementation of Vehicle Type Approval (VTA)

Under the current NAP, the Road Transport Department (RTD) was assigned to implement the VTA project, which is yet to be established. Under the NAP Review, the Ministry of Transport (MOT) will accord priority in the 10th Malaysia Plan to the full establishment of the VTA standards and testing facilities.

II. GradualIntroductionandEnforcementofMandatoryStandardsfor Parts and Components

Due to the lack of a specific regulatory body responsible in enforcing standards, there is insufficient coordination in the enforcement of mandatory requirements for parts and components.

Under the NAP Review, the Ministry of Science, Technology and Innovation will coordinate and formulate a roadmap for the introduction and enforcement of mandatory standards for automotive products.

III. GradualPhase-outofImportedUsedPartsandComponents

Safety and environmental concerns rose from the practice of importing used parts and components without any restrictions or mandatory tests. The NAP Review is introducing a mechanism to prohibit imports of used parts and components, effective from June 2011.

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IV. GradualPhasingOutofImportedUsedCommercialVehicles

Currently, imports of used commercial vehicles are allowed. Under the new policy, imports of used commercial vehicles will be prohibited, effective from 1 January 2016 in line with:i. the gradual phasing out of the import of used parts/components; andii. the termination of the AP system for used vehicles.

V. Clear Roadmap for the Implementation of Fuel Standards

Since September 2009, EURO 2M specification for petrol and diesel has been implemented. The government has now set a clear target of implementing EURO 4M specification for petrol and diesel by 2011. The Ministry of Natural Resources and Environment will establish a roadmap for fuel standards and quality.

VI. GradualIntroductionofVehicleEndofLifePolicy

At present, there are 2.7 million passenger vehicles that are aged 10 years or older on the road. Compared to other countries, Malaysia has a very low vehicle scrap rate and relatively high average vehicle age.

As a first step towards the implementation of a full Vehicle End of Life (ELV) Policy, the NAP Review introduces mandatory annual inspections as a requirement for road tax renewal for all vehicles aged 15 years or older.

The Ministry of Transport will formulate a roadmap to reach the full implementation of the ELV policy.

F. THEAPPROVEDPERMITSYSTEM

In line with Malaysia’s international commitments, the Open AP system will be terminated by 31 December 2015, while Franchise AP will be phased out by 31 December 2020.

Effective 1 January 2010, a charge of RM10,000 for each unit of Open AP issued will be imposed and the collection will be used to establish a fund to assist Bumiputera companies venturing into the automotive and other businesses.

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G. THENATIONALDIMENSION:ASTRATEGICPARTNERSHIPFOR PROTON

A new strategic partnership between PROTON and a globally established Original Equipment Manufacturer (OEM) will be established to enhance PROTON’s competitiveness in a global market and its long term viability.

H.EFFECTIVEDATE

The new policies and measures will be effective from 1 January 2010.





Designed by: Publications Unit, MIROS

Malaysian Institute of Road Safety Research Lot 125-135, Jalan TKS 1, Taman Kajang Sentral43000 Kajang, Selangor Darul EhsanTel +603 8924 9200 Fax +603 8733 2005Website www.miros.gov.my Email [email protected]


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