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MAI favours abolishing Open APs

KUALA LUMPUR: The Malaysia Automotive Institute (MAI) is in favour of abolishing the Open Approved Permit (Open AP) system as “it does not contribute” to the development of the country’s automotive industry.

“Our position is that [Open] AP does not contribute to the industry development. If it does contribute, then of course we are all for it,” MAI’s head of strategic research Asrulnizam Addrus said at a briefing on the automotive sector with the press yesterday.

The policy research unit of the Ministry of International Trade and Industry (Miti) is, however, not in a team led by external consultants to study the impact of the abolishment of Open AP. According to Asrulnizam, Miti is aware of MAI’s position on the Open AP although the latter is not part of the team that conducts the feasibility study.

“The reason why we are not in this study is because the minister wanted an external and non-biased view,” he reasoned. It is not clear when the feasibility study will be concluded.

Under the 2009 National Automotive Policy (NAP) Review, the original timeline for the termination of Open AP was supposed to be by end-2015. However, Miti said early this year that further study was needed to access its impact before a final decision was made, giving the impression that the government may backtrack on the matter owing to pressure from powerful lobbying groups.

Open APs, which are issued by Miti to a select group of bumiputera car traders, have been used to import a wide variety of reconditioned cars, also known as grey imports. The grey-import business is said to be lucrative and only benefits a small group, which is the Open AP holders.

“They brought in used cars [from abroad], refurbish them and then sell in the local market … we unfortunately don’t see this contributing to the industry development. “What we are saying is that if there is an industry development and contribution — such as importing these cars and then re-exporting them to meet demands elsewhere, then we are all for it,” Asrulnizam said at the briefing organised by A Securities Sdn Bhd.

The pendulum for abolishing the Open AP has been swung back and forth through three NAPs. During the release of the first NAP in 2006, the government announced that the Open AP would be phased out by Dec 31, 2010. This was never implemented successfully. The debate was revived again in 2009 when the government showed firm intentions to abolish the system by end-2015.

But by the time the 2014 NAP was announced, the government avoided making a firm commitment and instead said a study would be conducted on the matter. Asrulnizam said the feasibility study would assess the impact on bumiputera participation in the local automotive sector following the abolishment of Open AP.

“It is clear-cut that we need to terminate the Open AP, but at the same time, I am equally mindful of resolving the issue of bumiputera participation, especially in the automotive industry. “Having said that, the study should focus on the diversification of this plan [termination of Open AP], and the transformation it has as a whole to the automotive industry,” he said.

On a separate issue, Asrulnizam said the introduction of the goods and services tax (GST) next year will impact car prices. “We’ve been hearing reports that car prices are expected to be reduced by 4% [with the 6% GST replacing the 10% sales tax]. Results from our simulation show that it [the car price] will be reduced by 2% to 3% immediately after the introduction of GST. However, for some selected models, the prices may increase,” he said without naming the specific models and segment.

On the ambitious target of the NAP 2014, Asrulnizam is confident that the industry will be able to meet the challenges set in the policy. “For us, the NAP target is not too ambitious. We recently established the Malaysia Automotive Council to monitor the implementation of NAP 2014,” he said. On the five-year outlook of national carmaker Proton Holdings Bhd, Asrulnizam noted two challenges, namely technical and after-market issues.

“As for the technical side, I think that the carmaker is meeting its target and this is evident in the introduction of new models such as Suprema and Preve, which have better specifications than other models. “However, Proton has a lot to improve in terms of branding, market sentiment and value perception, but I do believe that it can be a successful company compared to their peers,” he said, adding that Proton has presented its transformation plan to increase its production capacity in Shah Alam and Tanjung Malim to 500,000 units by 2018.

Asrulnizam said regulatory reform is needed, especially in the after-market segment, which refers to the secondary market of the automotive industry comprising after-sales services, repairs, trading of second-hand cars and so on.

“The after-market sector requires further regulatory reform and enhancement, and we are currently studying this under the Authorised Treatment Facilities framework which is part of the six NAP roadmaps.