The Changes of Market Shares for the Local Cars

The local car market in Malaysia consists of local car manufacturers and companies that joint-venture with foreign company like Tan Chong and Datsun from Japan. The two main local car manufacturers are Proton and Perodua. Before the financial crisis in Malaysia at 1998, Proton was the leader in the local car market. Proton has the highest sales of cars than other car manufacturers. However, after the financial crisis, Perodua managed to take over the leadership in local car market. The main reason is Perodua has launched many new models as compared to Proton. The after-sales service by car manufacturer like Perodua was much better than Proton. The replacement parts for Proton is very far expensive than Perodua. Perodua also reduces their car prices to attract more buyers. Besides all these changes, the prices for the joint-venture cars are very expensive due to high sales tax and import duty. Currently, the sales tax is coming down for all the cars including local and foreign cars. The joint-venture cars are expensive in Malaysia because they are considered as foreign cars and the government wants to encourage more local people to buy local cars. The local cars’ qualities are not par with the foreign cars. The new car buyers will look at the quality first before buying them. Lately, the car industries are very competitive because the foreign joint-ventures provide many new schemes to attract new car buyers. For example, they introduce the low interest financing which provide high loan and low interest rate. They want to attract more middle-income groups to buy their cars. The interest rate for national cars like Proton is higher than the non-national cars like Honda and Nissan. Even though the interest rate for national cars is high, the lower or middle income groups are likely to buy national cars. The main reason is the price for national cars are cheaper than the non-national cars. The EON Bank Bhd hire-purchase officer stated that: “the bank’s revised interest rates for new non-national cars were 3.5% (5 year tenure), 4% (7-year) and 3.85% (9-year) while the rates for national cars now stood at 3.85% (5-year tenure), 4% (7-year) and 4.10% (9-year)” (Yvonne Tan & Eugene Mahalingam 2010, para. 6,7). For example, a proton car cost about RM 80,000 and the interest rate is 3.85% per annum. The new car buyer has to pay an interest of RM 3080. In contrast, a BMW car worth RM 300,000 and the interest rate is 3.5% per annum. The new car buyer has to pay RM 10,500 for interest. If a car buyer chooses to buy BMW, he or she has to pay an extra of RM 7420 of interest. The interest for both cars differs greatly because the price for both cars is totally different.

The market shares among the local car manufacturers are divided when the new models from the joint-venture companies like Toyota and Nissan emerged into local car market. The table above shows the sales and production of passenger cars for the year of 2002 and 2003. For the year of 2002 and 2003, Proton maintained the leadership in the local car market. However, there was a decline in their sales volume from 214,373 units in 2002 to 155420 units in 2003 and their market shares fell from 59.6% to 48.6%. On the other hand, Perodua remained at the second position in the local car market. Perodua’s sales volume fell from 114,265 units in 2002 to 111798 units in 2003 but their market shares rose from 31.7% to 35%. The new foreign cars like Toyota, Honda and Nissan have less market share in the local car market. The main reason is foreign car’s price is much higher than the local cars like Proton and Perodua.

Table 2 shows the analysis-by makes and segment for passenger vehicles. Before 2004, Proton has the largest market share in the local car market but after a few years, Perodua has overtaken Proton as the leader in the car sales. In 2008, Perodua managed to sell 167,392 units as compared to Proton that only sold 141,782 units. The market share for Perodua which is 33.6% is higher than Proton market share, 28.5%. The sales volume for Perodua increases from 166,735 units in 2009 to 188,641 units in 2010. The market share also rises from 34.3% to 34.7%. People like to buy Perodua cars because Perodua has better quality of model like Myvi. On the other hand, Proton’s sales volume increases from 141,782 units in 2008 to 147,744 units in 2009 and to 156,960 units in 2010. The market share for Proton cars rises from 28.5% in 2008 to 30.4% in 2009 but fell from 30.4% in 2009 to 28.9% in 2010. This drastic change happens because Proton cars are old-fashioned and Proton didn’t change the model of the car but only modified them. Perodua’s after-sales service is better than Proton’s after-sales service. It is always cheaper to maintain a Perodua car than a Proton car. The spare parts for Proton cars are expensive as compared to Perodua and the parts are in poor quality. The other foreign car like Honda increased their sales volume and market share in the local market. The sales volume for Toyota fell from 87,416 units in 2008 to 65,744 units in 2009 but increased to 71,065 units in 2010. The market share also fell from 17.6% in 2008 to 13.5% in 2009 and to 13.1% in 2010. Normally, the new car buyers will choose to buy national cars as the cars are cheaper than foreign cars. People cannot afford to buy the foreign cars because foreign cars double the price of national cars like Proton and Perodua. Besides this, the resale value for foreign cars is much higher than the local manufactured cars.

Reasons for the Changes to the Local Car Market

The two main reasons for the changes to the local car market are sales tax and excise duty and Asean Free Trade Area (AFTA). Sales tax is a single stage tax imposed at the import or manufacturing levels. (Taxation, 2011) All the buyers need to pay sales tax and excise duty for all vehicles whether is local manufactured or foreign assembled. The car buyers need to pay more if they buy foreign cars like Toyota, Honda and Nissan. Raslan Sharif (2011, p.49) noted ‘these taxes are a source of considerable revenue for the Government as about 500,000 vehicles are sold every year in Malaysia’. If the foreign car is too expensive, the new car buyers will prefer to buy local cars as they are cheaper and no import duties. For example, the original cost of a Honda car is RM 53,000, however, because of sales tax and excise duty, the Honda car has increased the price to RM 93,000. The new car buyer has to pay an extra of RM 40,000 for a Honda car. The price of a Toyota Vios in Malaysia is about RM 83,000 but in Thailand the car only costs for RM 43,000. Sales tax and excise duty can affect the sales of local cars or foreign cars. The Malaysian Insider stated that: “Malaysians were currently paying eye-watering excise duties of between 65 to 105 per cent on top of 10 per cent in sales tax”. (Lee Wei Lian, 2011) Sales tax and excise duty also decrease the quantity traded for local cars in the local car market.

Excise duty is a type of tax that imposed on buyers. Excise duties are levied on selected products manufactured in Malaysia, namely cigarettes, tobacco products, alcoholic beverages, playing cards, mahjong tiles and motor vehicles. (Excise Duty, 2011) Excise duty is an ad valorem tax levied on manufacture, sale, or use of locally produced goods. (Excise duty, Business Dictionary.com) Initially, the diagram above represents the demand and supply for the local cars. D0 is the initial demand for local cars and S0 represents the supply of the local cars. D0 and S0 are intersecting at point e0. The equilibrium price is P0 and the quantity traded for local cars is Q0. The supply of local cars shifts to the left from S0 to S1. The price of the local cars increases from P0 to P1. The quantity traded for local cars also decreases from Q0 to Q1. When the new car buyers know there is an increase in the price for local cars, they will not buy them. Eventually, the demand curve shifts to the left from D0 to D1. The quantity traded for local cars decreases from Q1 to Q2 and the price of the local cars become uncertain. Apart from sales tax and excise duty, the Asean Free Trade Area (AFTA) also contributes to the changes for the local car market. The sales tax and excise duty is coming down because of Asean Free Trade Area(AFTA). AFTA is a collective effort by ASEAN member countries to reduce or eliminate tariffs on intra-ASEAN trade in the goods sector. (Introduction, miti.gov.my) If there is no reduction in sales tax and excise duty, those investors would not want to invest in Malaysia and Malaysia’s local cars like Proton and Perodua cars cannot sell to other countries. Malaysia’s excise duty is much higher than other asean countries like Thailand and Indonesia. People would not want to buy Malaysia’s cars as their own countries’ cars have better quality and cheap.

Conclusion

In conclusion, there are a few changes to the local car market. Perodua has taken over the leadership from Proton in the local car market. The sales of the Perodua are better than Proton because Perodua’s car is cheap and has better after-sales service. The car industries in Malaysia are competitive as more people are able to buy foreign cars. In my opinion, Malaysians mostly will choose foreign cars if they can afford to buy a foreign car. If they are in the low or middle-level income group, they would probably choose Perodua’s car as their first choice. Proton cars have more car problems and in poor quality than Perodua cars. People would buy foreign cars as they would not depreciate much when compared to local cars. The resale value for local cars like Perodua and Proton are low too. Foreign cars are expensive because of the high taxation on foreign cars. I think that the government have high taxation on foreign cars in order to protect Proton. People have lost confidence on Proton cars as the model is lousy and the spare parts are expensive than other local cars like Perodua.