Thursday, May 31, 2007

Reduce the Price of Cars

The inflated prices of cars (Cars are ironically more expensive in Malaysia than in more wealthy nations such as Japan, UK, Korea, France or the US) is leeching out money from the average household.

For a nation which is still developing, we require more capital to push start Small Medium Industries and Entreprises which is a key area in generating new economic opportunities. Without much capital, such endeavour would be placed on the backburner.

The inflated price of cars bleeds the household of capital accumulation opportunity. Instead of having more money to keep as possible capital, more is being paid to their bankers and of course to the government. Less money is available for spending.

Many individuals spend on their cars to settle their loan. Car instalments can take up 30% of their small salaries compared to those of the West which is far less than this figure. In some cases, it is higher than this.

In taxing too high on cars and imposing various duties and other levies, the price of cars in Malaysia has inflated to an unreasonable figure, and as a result, the people have to spend years (7 years etc) slugging it out just to pay up. Instead of having more money to have better living conditions, now they have to cut on their food, clothing, family outings, education and other more important tasks. This does not happen in Western countries.

If we reduce the price of cars, we would have more money for savings and have enough to accumulate capital for perhaps entrepenurial pursuits, which will push start small medium industries.

Moreover, with the reduction in the price of cars, there will be less accidents on the road that will rob one individual's life potential loss of earning of RM30,000,000 (average lifetime worth of a single individual) and not to mention the cost of disability and the effects on the families involved. More individuals will be able to afford a car as opposed to a motorcycle (The vast majority of road traffic accidents which result in fatalities are bikers).

It is not reasonable to continue paying for your car up to 7 years. The more likely figure would be below 3 years. More money should be channeled into other more essential spending rather than that of a car and it should not take up a vast portion of your income.

With greater disposable income as a result of paying less for your car, there will be more economic activity. There will be increased velocity of money, and as a result, increasing income for businesses and as a corollary to this, increased government expenditure. But more importantly, more money can be channel into more purposeful spending that benefit the household itself rather than enriching the banks through mortgage and remortgage.

No! reducing the price of cars will not make our country poorer. Instead, it will generate more economic opportunities.

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