Is it time to buy a car?

I still remember when I first went and bought a new car 5 years ago. I was using a family car before then – Proton Wira from around year 2000 – and then my father decided that it is “time” I get my own car.

For Malaysians and those who have been to Malaysia, we all deep down know that the flexibility of getting around cannot be fulfilled by public transport alone.

What car to get?

This question varies from person to person. For me, my criteria for hunting down my first car was the following:

• Price less than RM90k
• Sedan
• Fabric seats
• New car only
• Preferably not a local brand

In Malaysia, we don’t have many choices with this kind of a criteria. At that time, the only cars that fit my “Sedan that costs less than RM90k” criteria boils down to these few choices:

I had only 3 choices after taking out the local brands. The choice was simple when it came down to that 3. Nissan Almera was the cheapest in terms of pricing and for the highest specifications it still has fabric seats, whereas Honda City and Toyota Vios uses leather for their high specs version.

Hence, I went with Nissan Almera, which is a car that have comfortably fulfilled its duty in bringing me from point A to point B.

What is a car to you?

I just wanted an affordable car that can get me around, fetch family and friends around if the occasion arises and can last a long time. The “Preferably Not a Local Brand” is also a personal preference.

Some of you might be simpler than me and you can get by with a cheaper car than what I had. Or some of you might want to feel the pride of driving a premium grade car and hence go for something more expensive.

Once you set out the budget you want to afford and the purpose of the car (own use, family friendly, terrain friendly, etc), you will be able to shortlist to just a few cars. After test driving all the options, you will more or less have decided on the one that you prefer out of the shortlisted ones.

How much should I commit to paying for a car?

In my view, the commitment to purchase a car should only take up to a maximum of 20% of your net income (after taxes).

A car is something that loses value over time, in financial terms we call it a depreciating asset. There is no price appreciation or increase in income in getting a car. At least not directly, anyway. Hence, it is important not to put much of your budget into a car.

So why 20%? Taking a simple segregation of disposable income:

Categories	Allocation
Savings	10%
Living expenses	40%
Housing expenses	30%
Total	80%

This puts 20% of our disposable income into car expenses (car loan + car related expenses such as petrol, parking, service/repair, etc). However, with the rise in our income in years to come, the allocated % will slowly decrease.

This is a pretty rough estimate and may vary depending on how your lifestyle is, but we should cap the commitment to a car to be prudent and any additional cash should go to income generating assets whenever possible.

(Refer to my posts under Money Management or Investment for more on how best to manage finances or possible avenues of investing)

Malaysia’s PENJANA Initiative June 2020 for Cars

A friend recently asked me whether it’s the right time to buy a car now with the new initiative rolled out by the Malaysian government under the Economic Recovery Plan or PENJANA to combat the hit taken by the automotive sector due to the Covid-19 crisis.

This saw an surge of people going into car sales gallery to take advantage of the tax exemption when Malaysia entered the recovery phase of the Movement Control Order (MCO).

When it was first announced, I can’t say I wasn’t tempted to trade in my current car for a new one, but before I jumped on the bandwagon, there are 2 things that I had to know:

1. What exactly is exempted?
2. How small/big is the impact on pricing?

Understanding the tax exemption

The government has agreed to exempt sales tax up to 100 per cent for completely-knocked down passenger vehicles and 50 per cent on completely built up cars from June 15, 2020 to December 31, 2020

Extracted from New Straits Times

This will run for a period of 6.5 months from 15 June 2020 – 31 December 2020.

To put things in perspective, imported cars in Malaysia are charged various taxes as follows (details can be referred to here):

• Excise duty (60% – 105%)
• Import duty (10% – 30%)
• Sales tax (10%)

What is the effect on car prices in Malaysia? Astronomical.

I remember seeing a new Nissan X-Trail priced at AU$30k in Australia (translates to about RM90k now), but in Malaysia a Nissan X-Trail’s starting price is at RM130k.

But you should notice that the high taxes are actually the excise duty and import duty, and not the sales tax which is “exempted” in this initiative.

The tax exemption effect on car prices:

It translates to a reduction of the final pricing of about 3% – 6% only.

This means that if you intend to buy a car that costs RM100k, your “savings” will be RM3k – RM6k depending on what car you purchase.

My take on this?

The sales tax exemption is not attractive enough at this point and should not be your reason to get a new car. If you need to replace your car or intend to get a new car anyway before this initiative, then go ahead. Otherwise, there is no reason to add more burden to your finances.

Do not be deceived by the mini-discount and forget about the bigger picture. As they say, “do not be Penny Wise, Pound Foolish”.