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The Malaysian Automotive Association (MAA) is lobbying the government for an upgrade to Euro 4 fuel quality, from the current Euro 2, as well as an extension of tax incentives given to hybrid cars, which will end along with the year 2013. We learnt this at the recent KLIMS13 exhibitor round table with official media, the first time the show organiser had set up such a forum.

At the informal round table, KLIMS13 official media sat with MAA president Datuk Aishah Ahmad and several car company bosses as they talked about the Malaysian car industry as well as the motor show, which will happen this November 15-24 at the Putra World Trade Centre.

Aishah revealed that the MAA is confident that the projected total industry volume (TIV) for this year will hit the projected 640,000-unit mark despite a slow first half. Car buyers played wait-and-see in hope that prices would come down, but GE13 passed by without a change of government and policy. The resulting pent up demand meant that the second half of 2013 started strongly for the industry – July recorded the highest monthly TIV in four years.

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She added that the launch of new models and players offering incentives contributed to the rebound. The year-to-date figure till August reflects over 5% growth already, so the auto sales train is on the right track.

A possible negative factor would be the recent reduction of fuel subsidy by the government, part of the administration’s long-term subsidy rationalisation programme, which led to a 20 sen increase in pump price for RON 95 petrol and diesel. Aishah put this into perspective, saying that in reality, an increase of 20 sen per litre is a small sum, compared to pump prices in other ASEAN countries. MAA is expecting a short term impact, if any, rather than a major setback.

Volkswagen Group Malaysia CEO Dr Zeno Kerschbaumer added that the fuel price increase “will put (consumer) focus on fuel efficiency and CO2 footprint, which is a positive thing.” We agree with him – petroleum is a finite resource, and by focusing on FC, Malaysian carbuyers are merely catching up with a worldwide trend.

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Consumers want the latest and most efficient tech, but modern engines require fuel that is better than Malaysia’s current Euro 2 standard. Aishah and the carmakers MAA represent are lobbying the government for an upgrade to Euro 4, although she concedes that it’s “a chicken and egg situation” as the government’s current priority is to reduce subsidies, and no one wants to pay more for fuel. “We can’t introduce fuel efficient models unless we have the fuel,” she said.

European carmakers are already producing engines capable of meeting upcoming Euro 6 standards, Thailand is selling Euro 4 fuel while Euro 4 diesel flows from Singaporean pumps. India is currently at Bharat stage IV, equivalent to Euro 4, and so is China. For a country that produces high quality crude oil, Malaysia is seriously lagging behind, but as Aishah pointed out, chicken and egg.

Another thing on MAA’s wishlist is for tax incentives given to hybrid cars to extend beyond the current deadline. Announced in Budget 2011, full import duty and excise duty exemption for hybrid cars below 2,000 cc was extended in Budget 2012 to December 31, 2013. Ever since full duty exemption was given, the hybrid car segment has seen a big boom led by Toyota and Honda. From just 332 hybrids sold in 2010, over 15,000 hybrids found new homes last year. 8,571 units were sold in the first seven months of 2013.

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Should MAA fail to convince the government to continue dishing out hybrid incentives, those sharp rising figures are set to come back down to earth – with subsidised fuel, pump prices aren’t high enough in Malaysia to compel the consumer to opt for a hybrid model, which would be costlier to buy than a regular petrol-powered machine without costly batteries.

It doesn’t make financial sense, as the price difference will be too big to recoup from the pumps, many would argue. A hybrid’s lower CO2 output brings no savings too, as Malaysian road tax is charged based on engine capacity alone. We suspect that most local hybrid car owners didn’t buy their cars for the love of Mother Earth.

The government may still dole out incentives, but in a different package. In a recent session with the Malaysian Automotive Institute (MAI), we were told that the upcoming revised NAP will see manufacturing licenses and pre-packaged customised incentives given for energy efficient vehicle (EEV) production and investment. It’s like telling the car companies “if you want the tax breaks, come and make the cars here.”

Click here to read more on the upcoming NAP revision and EEV classification.