Wednesday, April 20, 2016
National Car Project
The idea of the national car project came from the jealousy that foreign car makers could come to this country and assemble their cars and sell them cheap here. Why should we let these foreigners make money here when we could easily monopolise the market. In addition, we could learn and know how to make cars and we could become a super duper nation of science and technology.
This idea came from a bunch of other ideas connected with the desire to industrialise the nation, as per the national plan of raising productivity growth and value add in order to bring about higher incomes. Someone came out with the idea that we should also be manufacturing steel and building a six lane highway for people to drive up and down and therefore creating a demand for cars. All these ideas were implemented and failed.
The reason why car makers go to each market and assemble their cars there is that they are running on grand economies of scale and are trying to reduce the cost of production and making their cars cheaper so that more people can buy. There is a certain fixed cost in creating new platforms which can be repaid by selling many many cars. This basic economics is good enough to kill off any new competitor and makes the car industry the exclusive playground of a determined few in the world. Any body else coming into this game must be a subset or a derivative.
So the national car project basically learns to assembly a car that is also designed and manufactured elsewhere. Whatever we had tried to do to make the car project a national project is to try to increase its local contents which can at best be marginal because the basic cost is the fixed cost. If localisation means deterioration in quality as a result of inexperienced in controlling quality. If the purpose of the national car project is a social project of creating jobs for locals, then there could be the reluctance to invest in automation especially if the machinery is made overseas. In other words, we have basically set ourselves up to lose right from the very start. We are going to clone an existing product from a competitor and reduce its quality and try to sell it at a lower price. Obviously, the market we are trying to target is the lower income groups.
However, it was discovered that the localisation did not reduce the cost of producing the car and in fact increased its cost. The key reason is the loss of any advantage of economies of scale because there wasn't any. There are then the issues of quality of parts and assembly which all added to a major PR negative. In any case, the solution to this was to impose import duties on imported cars and this has to be done by a colossal amount in order to be able to price the national car more competitively.
With now a higher priced car than an imported one without duties, the only way to sell the car is to literally give it away through easy car financing schemes. One could (and still can) drive a brand new car away with a small downpayment and abandon the car when one cannot repay. This is our car version of the infamous sub-prime lending. Nonetheless, what this means is that we have been pouring the national cars on our road system everyday at the rate at which they can push off the assembly line in a day.
We now have a recipe for national road traffic congestion disaster. Before long, all roads are clogged up and new roads have to be built for these cars to drive on. In the past, we could limit credit for hire purchase as part of monetary policy; today, we have no hire purchase policy except schemes that relentlessly push more and more cars on the roads. With the national car project, we have abandoned any planning for the public transport system with public housing and sustaining townships. We just have cars and cars on the roads. (The current afterthought on the MRT is an attempt to solve some problems of the past, not planning for the future.)
With poorly made cars being put on urban roads and country roads, when these cars go on the expressway, they become potential flying coffins. I am not entirely surprised that we are now number one in the world for fatal car accidents.
I am convinced that the national car project must be scrapped so that no more good and scarce money should be thrown to support it. The national car project of course is supporting a community of vendors and car sales people and even lucrative car mechanics, but it is not as if we are closing down the car industry which we apparently nearly have by our bad policy. It is time we correct the car industry policy, by killing the national car project and reviving the national car industry. Those from the national car project can still be redeployed within the local car industry, when the national car project is sold to the private sector. It is an economic efficiency issue.
Let us reduce the adverse impact of cars on our environment by reducing the number of poorly made cars on our scarce roads. Let us put good public transport systems in our major urban centres. Let us do proper town planning. Not just the Klang Valley. We can even remove the import duties on cars and control the number of cars on the roads by other means. It is time that we all learn to think about the policies on these issues.
Posted by etheorist at 11:39 AM