Saturday, January 24, 2009

New KL rules could hit car dealers

Jan 24, 2009

Approved permit system being overhauled in bid to stem abuse
By Leslie Lopez

KUALA LUMPUR: Malaysia's controversial import-licensing system for luxury cars is undergoing a major shake-out that threatens to put several dozen car dealers out of business.

The turmoil in the sector, which is worth several hundred million dollars annually, is a result of new rules the government imposed this month to plug loopholes in the licensing system called Approved Permits, or APs.

The rules came about after a yet-to-be published government audit exposed serious irregularities.

The audit looked into the business practices of a small clique of well-connected Malay businessmen who received their AP allocations each year.

The audit revealed that a large number of the businessmen were hawking their import permits to mainly ethnic Chinese car dealers who dominate the country's luxury vehicle dealerships, documents reviewed by The Straits Times show.

The government audit also revealed that many of the companies involved in the AP business were poorly managed, lacked adequate funding and in some extreme cases even forged government documents when importing luxury cars.

It was not clear whether action will be taken against them.

To stem the abuses, the government has temporarily ceased the issue of new APs, ordered the AP companies to beef-up their financial position and banned the trading of these permits to car dealers.

The last measure, industry executives say, could force many Chinese car dealerships out of business.

Several Chinese-owned car dealers, who spoke on condition of anonymity, said that the new rules have disrupted imports and their purchases of APs from Malay businessmen are being questioned by the authorities.

'Car sales are already down because of the economic crisis and the new rules only make doing this business tougher,' said one owner of a luxury car dealership in the Petaling Jaya suburb outside Kuala Lumpur.

'We bear the financial risk in this business by importing the cars. But if we are also going to be investigated for using APs then there is no point staying in the trade,' griped another car dealer in KL.

All cars not assembled in Malaysia must have an AP, which are issued for free by the government to a small band of Malay licensees.

The models include limited editions of Mazdas and Toyotas, along with the Porsches and Ferraris.

Typically, the APs are then sold to car distributors for prices ranging from RM10,000 (S$4,138) to as much as RM40,000 each.

These costs, including taxes imposed by the government, are then passed on to Malaysian consumers who generally pay some of the highest prices for cars in the region.

The AP system for imported vehicles began in the mid-1970s to encourage ethnic Malay businessmen to venture into car distribution, which was dominated by foreigners and ethnic Chinese.

When the Malaysian government began national car production through Proton, the AP scheme was adapted to protect the domestic car market.

The system later morphed into a symbiotic relationship between the Malay AP beneficiaries and Chinese motor dealers.

Despite the glaring abuses to the scheme, the Malaysian government is reluctant to scrap the policy which foreign car companies have long maintained is a trade barrier that violates the spirit of the Asean Free Trade Area.

International Trade and Industry Minister Muhyiddin Yassin told reporters recently that the government, which had originally promised to scrap the AP system by next year, had decided to extend the licensing arrangement.

He did not detail reasons for the extension, but industry executives say that it is because of the strong lobby from the policy's beneficiaries, who count among them powerful interests from Umno.

[Maybe the subtle nuances of this scheme escapes me, but as I understand it, the govt issues  AP for free to Malay licensees, who then sell these AP to Chinese car dealers. This is just institutionalised corruption. What value has the Malay licensees added to the scheme? ]

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