Cars are expensive. In a country that boasts not one but two national automakers, one may wonder why buying a car is still such a sizable investment.

Dollar for dollar, some of our proudly locally designed and built cars are still more expensive than their imported counterparts in the same class. Even after converting to ringgit, some foreign built models are still more affordable than locally produced ones, if you deduct the import duties.

That said, it is hard to find cars in the same class as our local brands when they are in a class of their own. After all, how can you match up to “Buatan Malaysia” cars which can boast “lifetime” warranties on their power windows?

Perhaps while the government is considering extending the excise and import duty exemptions for hybrid cars when the National Automotive Policy (NAP) is revised, it could take another look at addressing the declining affordability of cars in Malaysia.

After all, this would be in line with the populist policy making we have been seeing of late.

There are two easy ways to go about this. First, high import duties have to be removed. Economists and industry players alike have long been calling for a liberalisation of the market and have pointed out that protectionism only serves to dull the competitiveness of our local automakers.

Time for government to remove high import duties as buying a car has become a necessity with an incomplete public transport system.

The second is the approved permits (AP) system which is tentatively due to be abolished in 2015. Mercedes-Benz Malaysia Sdn Bhd president and CEO Roland S Folger said he hopes to see “a clear and systematic road map towards the abolishing of APs for imported vehicles in 2015”.

The folks in middle- to low-income groups could certainly use a break when it comes to buying a car, which has become a necessity in a country with an incomplete public transport system. They typically end up shouldering debts that are relatively large in relation to their disposable income to finance a quickly depreciating asset that offers no return and is at risk when taken on the road. Furthermore, the price of the said asset is inflated by protectionism.

As the owner of a local car dealership pointed out, “most low-income buyers seldom have much cash as down payment for the car loan. Instead, they take longer loans to make the payments manageable. While the payments are small, most of it will go to servicing the interest component and only a very small portion goes to paying off the principal amount. Often, the value of the car depreciates much faster than the principal amount.

“If for some reason the buyer can no longer service the loan, he will not even be able to trade down for a cheaper model. He’ll still need to top up the loan even if he trades in his car. This is assuming he doesn’t meet with an accident and the car doesn’t break down.”

Bank Negara Malaysia (BNM) recently reduced the maximum car loan period to nine years from 11 to make it more reasonable and at the same time tightened lending requirements.

Since the implementation a month ago, many buyers have found themselves no longer eligible for car loans. According to the new guidelines, they cannot afford a car, a necessity.

Even well-educated young professionals are not spared. They buy a car to go to work and go to work to pay for the car. With the graduate wages these days, striking out on one’s own without parental financial assistance is unthinkable.

Industry observers have mooted easing the prices of low engine capacity cars to help the rakyat. Opening up the market for low capacity cars and increasing competitiveness could be the first step in transforming the industry.

Then again, can you imagine more cars on our roads?

This article appeared in The Edge Financial Daily, February 20, 2012.