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Wednesday, October 31, 2012

Guna Otak Sikit

Guna Otak Sikit literally means "Use Your Brain laa". This is a collection of comments by various netizens as well as some of my commentaries. Just two days ago the government has clarified that it has NO intentions to cut car excise duties in Malaysia, what the hell happened to our automotive liberalization promise in 2015? Talk cock sing song again? What comes after that is even more surprising: flexi-payment schemes offered by banks specifically to students and fresh graduates that offer LONGER repayment periods can help the rakyat (people) deal with high car prices. While duties & taxes generate in total RM7 billion in revenue to the government as of 2011, it is also inflating car prices by as much as 100 percent.
Back in the 70s, the usual car repayment period was a mere three years. Then it went up to five, seven and we even have nine years now. A longer repayment period means the banks will make more profit from the interest because the hire purchase interest is computed on a fixed scale at the start of the loan, rather than reducing amount like we see for houses. Take an example of a Honda City bought using RM60,000 (30k down payment) with purchase loan of 3% interest rate would incur the following charges:-

Repayment over 5 years, interest amount of RM9,000, 15% of principal amount. Monthly installment of RM 1150.
Repayment over 7 years, interest amount of RM12,576, 21% of principal amount. Monthly installment of RM 865.
Repayment over 9 years, interest amount of RM16,140, 27% of principal amount. Monthly installment of RM 706.
*Repayment over 12 years, interest amount of RM21,648, 36% of principal amount. Monthly installment of RM 567.

This is the best way to lose even more money and to use up future earnings now. Take 7 to 9 years, one has an extra RM159/month. In 2 years one would have an additional RM3816 but remember you are paying an extra RM 3564 in interest. So you technically save RM252 in 2 years which is RM10.5 a month! What the oook. Extending the repayment period merely reduces the quantum of the monthly installments. In reality it will make VERY little difference to the buyer's disposable income once interest amount is taken into account.
Personally I would like to see market prices for cars and market prices for petrol. You heard it right, cheap cars but expensive petrol. Then I will have the choice of how to spend my money. If I don't drive, I don't really pay for expensive petrol and if I choose to drive to Ipoh for Dim Sum, I have to pay for expensive petrol.

In fact it makes a lot of economic sense to totally abolish the duties & taxes on cars and slash subsidies. Lower revenue is compensated from slashing subsidies and the increase of disposable income for people has a multiplier effect on the consumer industry thus indirectly leading to higher sales tax revenue. Some argue that by lowering car prices would lead to 1) increase in  traffic 2) used car dealers going bankrupt. Both are not true.
Total vehicle sales in Malaysia has reached near saturation stage since 2005. The market is saturated because there is little room to grow (the only way is a growing population) as Malaysia has one of the highest vehicle-to-population ratio in the world. We have 20 million vehicles travelling on the road (from Malaysia Automotive Institute statistics) to a population of 28 million people. If cars are to be cheap, one can say that they will only replace existing cars, not adding more vehicles on the road.

Second by reducing the excise tax slowly, say by 20 percent basis year by year or the used car industry may collapse. This way disposable income can be increased by RM70 to RM100 for a monthly car loan of RM700. This will give ample time for dealers to clear existing stock and at the same time help the people cope with escalating cost of living. Moving forward, you should know how to vote if you wish for the following. The choice is a no brainer, it is backed by numbers and data. One just would only need to lay it out for the people to what I am doing =)

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