23-07-2007: Car-scrapping policy approved

The government has approved a proposal for the voluntary scrapping of cars 15 years and older to boost the domestic automotive market, particularly Proton, industry sources said.

It is understood that Proton Holdings Bhd has been entrusted with the task of coming up with the details of the policy.

It has been decided that those who voluntarily scrap their cars will be offered a subsidy to buy a new Proton car.

The subsidy will be on a scale with a maximum of RM5,000, said a source, depending on a number of parameters such as the make, quality and the market price of the car being scrapped.

"The subsidy amount will be sufficient to cover at least the downpayment cost of a new Proton car," an industry player said.

It is believed that the scope of the policy may well be extended in future to encompass cars that are 10 years old.

"It is also possible that the voluntary element for cars of a certain age may be removed so that there could be a compulsory end-of-life policy in the future," said one industry player.

One dealer explained that Proton was thus far the only car that actually fitted the bill because of its high local content.

"If other marques want to be considered for the scrapping policy then they could do so by increasing their local content as well," he said.

With the policy in place, the expectation is that sales of Proton cars will be given a boost as people opt to swap their old cars for a new Proton made more affordable with the subsidy.

For the used car market, the fact that old cars are being taken off the roads will offer some respite.

It is believed that the scrapping policy may be announced in time for the next national budget on Sept 7.

The car-scrapping policy was proposed by second-hand car dealers and Proton itself in an effort "to get old cars off the roads" and thus boost industry sales.

Previously, old cars that are scrapped are only worth the price of the scrap metal.

Malaysia has never had an end-of-life policy unlike several developed countries.

It has always been perceived that such a move would be unpopular with the masses as the cost of cars in Malaysia has always been relatively exorbitant.

However, with auto industry sales dipping, especially those of used cars, players have lobbied the government to implement some sort of end-of-life policy.

"This is a compromise arrangement. It's voluntary and at the same time attractive enough to make people stop and consider their options at least," commented one dealer.

The local auto market was badly hit when new car prices fell after the announcement of the national automotive policy in March 2006. As new car prices fell, so did the prices of used cars which meant that many were left with car loan amounts that were higher than the residual values of their cars.

This caused a slowdown in the market which industry experts then estimated would take 18-24 months to clear up.

However, auto players came up with creative promotions in order to boost their sales which included dropping prices further while offering extended loan periods of up to nine years.

The result has been the prolonging of the pain after the NAP. Experts now expect that it could take the industry up to three years to find its equilibrium after the NAP.

"The car-scrapping policy will help to a limited extent, though," said a dealer. "It's a start in the right direction."