An industry source says the vehicles enjoy about the same incentives as a CKD unit

By AFIQ AZIZ / Pic By MUHD AMIN NAHARUL

The government should review the localisation policy of locally assembled vehicles that have not fully benefitted local components makers already struggling to reign in costs due to cheaper imported components and the limited market.

An industry source said the vehicles, of which the majority of components are imported into the country, enjoy about the same incentives as a completely knocked-down (CKD) unit.

The source said these vehicles, which are termed as “semi knocked-down”, are brought in almost 100% complete.

“They are only brought in for the assembling of simple parts here, but are given special discounts and incentives,” the industry source told The Malaysian Reserve.

Presently, there are only two categories of vehicles — CKD and completely built-up, or CBU.

A CBU car is a fully completed imported car, which are ready to be driven once it hits the showroom. But the government slaps a hefty levy and makes these vehicles expensive.

CKD cars are locally assembled foreign cars. Most of the components are imported, while the assembling is done at local plants. But manufacturers will enjoy more tax relief if they integrate more locally manufactured components.

The incentives of less taxes and levies would encourage foreign vehicle makers to use more local components, subsequently developing the country’s car parts makers and providing a ready market to local manufacturers.

The source said the incentives should prioritise vehicle makers that integrate automotive components like engine, safety systems, transmission and braking systems and chassis.

“Such incentives should not cover accessories,” said the industry source.

The use of local components was also part of the 2014 National Automotive Policy which wants to propagate “localisation” and drive car prices down.

Lower levies, incentives for carmakers and other tax incentives will make CKD cars cheaper, by some estimates up to 30%.

But that has not happened in the car-crazy country which sells almost 600,000 vehicles annually and has the highest car ownership ratio against the population in the world.

Despite the size of the country, the automotive sector is a key economic activity for Malaysia. There are 28 vehicle assemblers, with the whole industry, including parts makers, set to employ more than 755,000 people.

The government is already targeting RM12.5 billion in parts and components exports this year compared to the RM12 billion mark last year.

Malaysia’s automotive sector rise has been dogged by a limited local market, negligible CBU exports, cost competitiveness and technological constraints compared to giants like Germany, the US, France, Japan and South Korea. Malaysia is also lagging neighbouring Thailand, which has the largest automotive industry in the world with an annual production of almost two million vehicles (passenger cars and pickup trucks), or four times Malaysia’s annual output.