Government Appears Non-Committal In Abolishing Open APs In 2015

Last Wednesday, former finance minister Tun Daim Zainuddin made surprise comment to Bernama that put his former colleagues in politics in a tight spot. Daim suggested that the government should consider abolishing Open Approved Permits (APs), saying "Removing the APs would translate into cheaper cars for the rakyat."

Daim was picking up on a comment by Roland S. Folger, the president and CEO of Mercedes-Benz Malaysia. Last Monday, Folger told SunBiz that abolishing Open APs will pave the way for local manufacturers to increase investments to produce more affordable cars locally.

Folger told SunBiz "For me, there is one way we can reduce car prices. It's a simple solution to the issue (and that is to) do away with Open APs."

"It's a simple solution to the issue (to reduce car prices) and that is to do away with open AP's because APs holders naturally have a tendency of not paying full amount of taxes and this is without benefit to the country," he added.

Talks about abolishing Open APs are not new, and considering that the government have a history of not keeping to its policy outlined, many doubtful if the government will keep to its word this time.

Under the 2006 National Automotive Policy (NAP), Open APs was supposed to be abolished by 2010. As we all know, this did not happen. 

Open AP holders are mainly represented by the Malay Vehicle Importers and Traders Association (PEKEMA), whose members are often alleged to use their powerful political connections with the ruling government to lobby for extensions in Open APs.

In the 2009 National Automotive Policy (NAP), it is again stated Open APs will be abolished, this time by 2015.

The 2009 document reads "Open AP for used vehicles (commercial, passenger and motorcycles) to be terminated by 31 December 2015; and Franchise AP to be terminated by 31 December 2020."

AP is an import-control mechanism based on the Malaysian Customs Act 1967. Items that fall under the list of controlled imports include cars, motorcycle helmets and equipment to manufacture drugs and optical discs. Depending on the item, APs are issued either by MITI or other relevant government bodies.

For cars, there are two types of APs issued by MITI.

Franchise APs are given out for free to franchise holders like Mercedes-Benz Malaysia, which are recognized by the manufacturing principal to represent the brand in the country.

Open APs are sold to parallel importers at RM10,000 a piece to import cars of any brand. These parallel importers will then use their Open APs to import used or re-conditioned vehicles from overseas at a cheap price and then re-sold it in Malaysia at a much higher price, although prices are still lower than a brand new car from a franchise holder. Parallel impoters are not recognized by the manufacturing principal and most of the time, these companies usually operate in simple showroom and provide little after-sales support.

The total number of APs issued each year is capped at 10 per cent of the number of locally-assembled cars in the preceding year. Sixty per cent of APs are given to Bumiputera Open AP holders while the remaining 40 per cent are given to franchise holders, the majority of which are Bumiputera-owned.

Despite the fact that APs are clearly scheduled out for abolishment in the NAP 2009, MITI Minister Datuk Seri Mustapa Mohamed's response to Folger and Tun Daim's comments lacked any reassuring commitment that APs will be abolished as scheduled in NAP 2009.

"We (government) hear. The government is still studying the NAP. We have not yet decided on the revised NAP," he told Bernama yesterday.

Mustapa's comment is not surprising but the lack of commitment to send a simple but clear message to the industry that Open APs will be abolished as mentioned in NAP 2009 is troubling. If the government needs to conduct further studies in abolishing Open APs, does it mean that the government was ill adviced when they decided to announce in 2009 that Open APs will be abolished in 2015?

For more background on the debate surrounding APs, read our earlier story "Malaysia’s Open-AP System Likely To Remain Beyond 2015."