Car prices are expected to drop by 20-30 percent by 2018 with the roll-out of the National Automotive Policy 2014 which comes into effect from today up to 2020.

The NAP's main driver for cheaper cars will be competition, with the liberalisation of manufacturing licences, according to a briefing last week by the International Trade and Industry Ministry (Miti).

The drop in prices is estimated on a nominal level without adjusting for inflation.

The information was revealed at a media briefing last week, with further details expected to be released about 3.30pm today.

From today, any car manufacturer will be able to produce cars in Malaysia, even if 100 percent foreign-owned.

However, a manufacturing licence will only be issued to manufacturers of energy-efficient cars (electric vehicles, hybrid vehicles or efficient fuel combustion engine vehicles) measured to certain specifications.

Only hybrid and electric vehicles assembled onshore will continue to enjoy the tax incentive programme, as part of the NAP's focus on energy efficiency.

Hybrid and electric vehicles imported fully-assembled will revert to the import duties structure based on engine capacity and horsepower.

Excise taxes, which Pakatan Rakyat says is the main reason car prices are much higher in Malaysia, will also see revisions.

However, unlike Pakatan which had proposed the gradual but entire removal of such taxes, the government's NAP links excise tax reduction to its bid to turn Malaysia into a regional hub for energy-efficient car manufacture.

More onshore assemblies

Commercial car importers will enjoy reduction in excise taxes in proportion to their compliance with policy, but there is no word on whether these taxes will be removed in the near future.

For example, a ‘complete knocked-down’ car (where the imported parts are assembled in Malaysia) comes with 30-50 percent excise taxes, compared to 65-105 percent for complete built-up car (one that is assembled abroad and exported to Malaysia).

This is to encourage more assembly and manufacturing to happen onshore in line with the vision to turn Malaysia into a car manufacturing hub.

The government will also work with industry players to encourage them to drive costs down, through better efficiency and technology development.

This is a continuation of its policy pursued last year, which it says has seen car prices reduced by up to RM15,000 per unit for certain models.

For example, the Honda Jazz prices went down 17 percent from RM89,900 to RM74,800 - a reduction of RM15,100.

Nissan had also introduced the Almera to replace the similar but higher end model Sentra, resulting in a price reduction of about RM10,000. Although the Almera is a lower-range model, the top-range Almera is comparable to the Sentra, said Miti.

Miti's simulations also found that the introduction of the Goods and Services Tax - at 6 percent in April next year - will bring down car prices, as it is lower than the 10 percent sales tax factored into several levels of the supply chain.

The NAP also includes an end-of-life policy for vehicles, but on a voluntary basis through tests for roadworthiness at approved testing centres.

The vehicle reconstruction and recycling industry (such as kereta potong workshops) will also be regulated in line with the goal to improve the safety of vehicles.

There will also be staggered roll-out of the 128 United Nations Regulations for vehicle safety, with all vehicles produced in Malaysia to be compliant by January 2016.

Other features of the NAP include:
  • RM2 billion in soft loan and grants for energy-efficient vehicle manufacturers for capacity building and human capital development;
  • Increase of exports of parts and components from Malaysia from RM5 billion in 2013 to RM10 billion in 2010;
  • Promoting bumiputera participation in the total value chain especially through supporting the 500 vendor companies;
  • Growing employment opportunities by up to 150,000 jobs;
  • Creation of an export industry for re-manufactured components worth RM2 billion by 2020.