When U-turns hurt carmakers badly

Policymakers must realise investments do not fall from the sky. Money does not grow on trees


WHAT is the value of a bottled mineral water? Many would refer to the retail price of this already daily necessity. Most half-baked politicians are simpletons. It is just RM2.50 or RM5.

The real value transcends beyond the sourcing of the water or bottling it. Forget about the hundreds of people working at the bottling factory, or those sourcing and transporting the water to such facilities. These are fringes.

What many fail to see is the real value. Plastic bottles are made of polyethylene terephthalate (PET).

The raw materials to make PET are derived from crude oil and natural gas. This industry — oil and gas and petrochemical — is already worth trillions of dollars.

It is expected this year that about 583.3 billion plastic bottles will be produced, according to Statista. National oil company Petroliam Nasional Bhd’s downstream business is involved in the manufacturing of PET.

One wonders how many of these billions of plastic bottles will end up in retail shops, filled with mineral water? How many thousands of retailers from brick and mortar to sidewalk petty traders make a small profit from selling bottled mineral water?

Then, there is the retail space rented by traders. The property owners rely on these business owners, who also sell bottled water, to rent their premises. These tenants help pay the mortgages.

Banks, as usual, are the beneficiaries. They profit from interest charges on property buyers, while using the savings from retailers who bank their daily sales to issue more loans. That is just the tip of the iceberg.

Let’s forget about how many people are employed by the banks or the millions of litres of fuel used to transport these bottled waters across the country, the petrol and diesel dealers or the sales of lorries used to deliver all these consignments. One wonders if bottled water is still worth RM2.50.

That is a product ecosystem. The current lockdown order following the spike in Covid-19 cases has left one other sector reeling — automotive.

The initial announcement allowed automotive manufacturers to operate, only to see it rescinded a few days later.

It was a seismic shock to carmakers. Automotive manufacturers were squirming as they pulled the plug on their operations to comply with the Movement Control Order. Daily losses are said to be RM150 million.

A U-turn decision came a few days later and the assembling lines returned to life, much to the relief of car manufacturers. Orders are piling up for new models and making the June deadline was crucial to ensure buyers enjoy the sales tax exemption.

Such flip-flop decision-making hurts industries. More so automobile manufacturers. Cars are not one bottle of mineral water.

A normal car has between 3,000 and 4,000 components. From bumpers, steering wheels, electronics, engines, braking systems, exhaust, suspension, chassis, transmission, doors, penals, seats and upholsteries, to screws, fittings, etc.

One can only fathom the smaller parts that put a car together. A modern car alone has an accumulated length of electrical wires of more than 4km.

If the total car sales of the country are 540,000, the total wire length installed in these cars alone is a whopping 2.16 million km or equivalent to travelling from Earth to the moon 5.6 times.

The total wire installed in cars sold in Malaysia would equal circling around the globe 57 times. That is just the wire.

Policymakers must realise flip-flopping hurt companies like carmakers. Businesses invest money. One new car model costs almost RM1 billion to produce.

Pulling the plug, then allowing it to operate, has severe financial implications. Such flip-flopping will be measured by future investors. As it is now, many carmakers are already shifting to neighbouring countries.

Policymakers must realise investments do not fall from the sky. Money does not grow on trees.

The government can slap a guarantee note to finance meteor-size financial deficits. But businesses do not have that luxury.

Covid-19 is a financial and social disaster. So does having a fishmonger who does not know how to cut a fish.

Mohamad Azlan Jaafar is the MD and group editor of The Malaysian Reserve.