Wednesday, November 4, 2009

End-Of-Life Vehicle Policy: Putting People Last?

When the government said that it wants to put the people or rakyat first, many wondered whether the term `rakyat’ refers to the general public including the low income groups or whether it refers only to those in the upper income bracket. The recently announced End of Life Vehicle policy (ELV), if ever it gets implemented, will provide the answer to the question.
When the government for the first time spelled out the ELV policy, it was together with the announcement on the National Automotive Policy (NAP) the main objective of which, as we all know, is to sustain the growth of the nation’s auto industry. This is sufficiently indicative of the main motive for the ELV policy. The excited and happy response of the country’s main auto manufacturers more or less confirms this. They are all hoping that this policy will help increase their sales and profitability as owners of aging cars are persuaded to switch to brand new cars. On the other hand, owners of 10 to 15 year old cars many of whom are from the lower income groups are generally alarmed at the grim prospect of increased financial burden.
Some supporters of the ELV policy argue that it is high time that Malaysia follows other developed countries to implement the policy. This is a classic example of jumping-onto-the band-wagon fallacy because it ignores many significant differences between Malaysia and other developed countries such as Britain and Japan. One of the most important differences is in terms of income levels. Another is the price of cars. The 2008 GDP per capita (from World bank statistics) for Malaysia is USD7,221 while for the UK it is USD43,089. The price of an `average car’ in Malaysia, say a Proton Waja, is about USD19,000. If we compute Malaysian car price to GDP per capita ratio, it is about 2.63. In the UK, the price of a Proton Waja is USD19,200. The UK’s car price to GDP ratio is therefore 0.44. Therefore, relative to income levels, the price of cars in UK is about one-sixth the price of cars in Malaysia. In other words, the same Waja should only cost around RM11,000 instead of RM66,000 if we take our income levels into account. The fact is the price of cars in Malaysia is horrendously high due to protectionist policies. If the argument to justify ELV is that we should follow developed countries like the UK, new car prices in Malaysia should also first emulate car prices in the UK. Then only would the argument make any sense. Otherwise, the policy will impose a terrible burden on the average family. There will be many implications, from reduced savings for their children’s education to less money to pay for medical bills.
The government may argue that the reason is to improve the environment because new cars are more fuel efficient. This is actually a nonsensical argument. A recent study found that the positive impact on the environment by the US government’s `Cash for Clunkers’ program, which is a variant of the ELV policy, is very insignificant. Moreover Time magazine in its commentary on the US Government’s `Cash for Clunkers’ program highlighted the “undeniable fact that destroying an existing car — even a clunker — and manufacturing a new one requires energy and carbon emissions that would be saved if you just held onto your old car”. The reason is very simple. Assume that as a result of the ELV policy, there will be an additional sale of 200,000 cars on Malaysia road a year. If the average price of the cars is RM65k, then we are talking about a total increase of RM 13 billion which was completely unnecessary since without the ELV program there will be no such sales. The owners of the 200,000 new cars are now forced to work to pay for the purchases. Assuming that they are in the manufacturing sector, now the factories will be working longer etc. If they had not been forced to buy a new car, they would have had no new debt to worry about. Now instead of relaxing at home with their families, the car buyers are busy working in their factories and burning fossil fuel in the process. Actually, if the government is really serious about the environment, the focus should on reducing the number of big fuel-guzzling cars or SUVs or improving public transportation system so as to reduce the number of cars on the road rather than encouraging new car sales and new debts.
Another argument made for the ELV is to reduce accident rate. This is truly farcical because so far the government has not produced any statistics indicating that road accidents in Malaysia are caused by 15-year old cars. Actually we all know that most accidents actually involved motorcyclists. Furthermore, anecdotal evidence (such as the type of cars involved in accidents parked at a police station in my neighbourhood) seems to indicate that they are caused by young reckless drivers driving powerful new cars. Most owners of 15-year old cars are conservative or elderly drivers who simply do not speed recklessly on the road.
It is therefore obvious what the ELV policy is all about. It has nothing to do with the environment or the need to reduce accidents on the road. It is all about wanting to force people to buy new cars and abandon their old cars regardless of the roadworthiness of their existing cars or their income levels or financial situations. Presently many Malaysians have problems managing their debts. Hence the never ending reports of Ah Longs and their exploits. If the policy becomes practice, apart from the car manufacturers, the Ah Longs too will be very delighted.
As stated earlier, the ELV policy is going to be a real indicator as to whether the government puts the welfare of the people first or whether it is more concerned with the health of the country’s car industry. Fortunately I think our PM is not a politically foolish person. He knows that if the government is perceived to be unjust to the people vis-à-vis this ELV issue, then all his efforts to improve the perception of the people towards the government will suffer a serious setback. Nothing drives the people more towards the opposition than a policy that directly hurts the people’s pocket. ELV is one such policy.

7 comments:

  1. Dear Prof. Nazari,
    Instead of implementing ELV policy why not focus on improving public transportation to elaviate traffic congestion and educate drivers how to behave on the road or impose a stricter punishment to reduce accident.
    It will be a burden to low income families for sure. I believe when they buy a car, they would expect to use it forever!
    Thanks.

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  2. Dear Prof.

    Very good article. Clear and well explain about the end of car policy. But we can't compare apple with durian. Ringgit Malaysia is not equivalent with UK.

    The government was scrap the idea to implement ELV just like the privativation of public hospital a few years ago. But i believe the government will work in different way to pursue this policy. This policy such as first party insurance for old car, diffuculty to get the spare-part and etc.

    The people first government should not even think to implement this policy. But the reality is the current government is a just 'ikat perut' government. They wait until the rakyat vote them confidently b4 there start to implement policy that will hurt rakyat and benefits the richest.

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  3. Our current government always work with the framework of government knows best and the rakyat always will vote them in whatever situation.

    Same likes other policy, the government give the lip service reason for implementing this policy. As you said about the environmental and the accident. All the reason is nonsense.

    The real reason is the minister have no idea to improve government income. One the major source income is from car industry. The government will get at least 20% on sale tax from the new car sale.

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  4. very critical opinion. good.

    anyway prof, how old is your Volvo now? :)

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  5. Thank you. My Volvo is 1995 model. So it is now 14 years old. But i normally drive my Honda to work. It is a 1991 Accord i.e. 18 years. So you can now understand why i was highly irritated by the proposed ELV policy ;-)

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  6. Dear Prof,

    Your opinion is consice and precise (as usual its justify your profession). Again, I'm totally agreed and those old timers should look the same perspective like you.

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