Real Prices of Cars.
The Malaysian government is planning to make Malaysians pay the real price of fuel by August this year. This will be done by removing fuel subsidies altogether. This means – correct me if I’m wrong – from August onwards, the fuel prices will go higher than the current level. The government said that the fuel prices will be reviewed every month to follow the world prices. What this means is, when the prices go up, the domestic prices will go up as well – minus 30 cent (the capped subsidies that will still be given by the government). Whether the government will reduce prices of fuel should the world prices go down remains to be seen.
This brings with it another question to the Malaysians. If we now have to pay real prices for fuel, should we also pay real prices for our cars? Let me illustrate this to you. Let us start with a basic model of Honda City i-DSI. The price for the car sold in Peninsular Malaysia is RM 79,800.00 (On-the-road with insurance). The price for the same model in Langkawi Island is RM 53,800.00 (On-the-road with insurance). This means car buyers in Peninsular Malaysia is paying a premium of 48% from the buyers in the Island. Assuming Honda Malaysia behaves rationally (profit maximisation behaviour), this means at Langkawi price, the company would still be making profit per car. If this assumption holds, why are we paying RM 26,000 more for the same car? As you might already know, Langkawi is a Duty Free Zone, which means, Honda City sold in Langkawi is free from duty. This is what I mean when I ask, should we pay the real prices for our cars as well? And this is the question that our government has been trying to avoid when they announced the new fuel prices last week.
Let us look at another example, Toyota Fortuner 2.5V. In Langkawi, the selling price for tha Sports Utility Vehicle (SUV) is RM 99,014.63 (On-the-road with insurance) while the price in Peninsular is RM 171,494.09 (On-the-road with insurance). Again, the buyers are paying 73% extra, which can be translated into an excess of RM 72,479.46. Why do we have to pay this ridiculous amount of taxes and duties when at the same time we already have to pay the real fuel prices?
Don’t get me wrong, I am not asking for subsidies-for-life programme but I just hope that the economists in the government to consider a concept in economics, which is called, the compensated demand curve. This means, a change in one thing should be compensated with a change in another to maintain the same utility level of the people. The prices of fuel have to go up – no doubt about that – but other measures need to be done to lessen the impact of it on people. Moreover, this is not just about making life more affordable to the average Malaysian but also to ensure that our country will not be hit by hyperinflation. God forbid that from happening.
And to the government, don’t go around and tell the Malaysians that our fuel prices are still among the cheapest in the world because in reality it is not. You can read an analysis on that here. In the meantime, why don’t you head here and have some laugh.
P.S. Weather forecast says that the hot sunny weather over England will end tomorrow. Sigh. Enjoy it while you still can people!!!
SOURCE: Honda, Toyota, asia.vtec.net, and sonirodban.com
This brings with it another question to the Malaysians. If we now have to pay real prices for fuel, should we also pay real prices for our cars? Let me illustrate this to you. Let us start with a basic model of Honda City i-DSI. The price for the car sold in Peninsular Malaysia is RM 79,800.00 (On-the-road with insurance). The price for the same model in Langkawi Island is RM 53,800.00 (On-the-road with insurance). This means car buyers in Peninsular Malaysia is paying a premium of 48% from the buyers in the Island. Assuming Honda Malaysia behaves rationally (profit maximisation behaviour), this means at Langkawi price, the company would still be making profit per car. If this assumption holds, why are we paying RM 26,000 more for the same car? As you might already know, Langkawi is a Duty Free Zone, which means, Honda City sold in Langkawi is free from duty. This is what I mean when I ask, should we pay the real prices for our cars as well? And this is the question that our government has been trying to avoid when they announced the new fuel prices last week.
Let us look at another example, Toyota Fortuner 2.5V. In Langkawi, the selling price for tha Sports Utility Vehicle (SUV) is RM 99,014.63 (On-the-road with insurance) while the price in Peninsular is RM 171,494.09 (On-the-road with insurance). Again, the buyers are paying 73% extra, which can be translated into an excess of RM 72,479.46. Why do we have to pay this ridiculous amount of taxes and duties when at the same time we already have to pay the real fuel prices?
Don’t get me wrong, I am not asking for subsidies-for-life programme but I just hope that the economists in the government to consider a concept in economics, which is called, the compensated demand curve. This means, a change in one thing should be compensated with a change in another to maintain the same utility level of the people. The prices of fuel have to go up – no doubt about that – but other measures need to be done to lessen the impact of it on people. Moreover, this is not just about making life more affordable to the average Malaysian but also to ensure that our country will not be hit by hyperinflation. God forbid that from happening.
And to the government, don’t go around and tell the Malaysians that our fuel prices are still among the cheapest in the world because in reality it is not. You can read an analysis on that here. In the meantime, why don’t you head here and have some laugh.
P.S. Weather forecast says that the hot sunny weather over England will end tomorrow. Sigh. Enjoy it while you still can people!!!
SOURCE: Honda, Toyota, asia.vtec.net, and sonirodban.com
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