LETTER | Did govt really save money with Vellfire switch?

LETTER | In a written reply dated Nov 2, Finance Minister Tengku Zafrul Abdul Aziz confirmed that the government had switched the official vehicle for ministers from Proton Perdana 2.4L to Toyota Vellfire 2.5L starting April.

He disclosed that the monthly payment is RM5,759.35 per unit and a total of RM1.42 million had been paid to the concessionaire over a five-month period until September. These figures indicate about 50 units have been leased with maintenance included.

On Nov 7, the Finance Ministry issued a statement to justify its decision to use the Vellfire as the official vehicle for cabinet ministers and provided several reasons for public scrutiny.

One of the reasons being the monthly payment for leasing a Vellfire is RM2.80 lower than a Perdana or a saving of RM140 per month for 50 units. This amounts to RM1,680 per year and a total of RM8,400 over a five-year lease period.

So, should the Finance Ministry be congratulated for saving RM8,400? Yes, if for every ringgit saved is a ringgit earned. No, if RM17,278.050 had to be spent in order to save RM8,400. If car allowances were given instead of providing official cars, the saving would be substantial.

If the monthly allowance is fixed at RM4,000, the total cost over a five-year period for 50 would amount to RM12 million and that would mean a saving of over RM5.2 million. It would then be up to individuals to decide on the vehicles they wish to purchase and maintain on their own.

Virtually all have already bought luxury cars at affordable prices by taking advantage of excise duty exemption as MPs and assemblypersons. Spanco, the sole fleet management company that leases vehicles to the government, also enjoys excise duty exemption.

Disturbingly, the Auditor-General’s Report 2018 Series 1 revealed that from 2015 to 2017, the government lost out RM4.89 billion worth of excise duty exemptions to locally assembled vehicles alone. Sadly, we have got our priorities wrong on too many fronts.

In some European countries, it is common for government ministers to use public transport. But in Malaysia, they are treated like royalties, thanks to many people, particularly humbugs, that like to make a fuss over a minister and be seen as close to the powers that be.

Ebb and flow 

Over the past six decades, the car rental and leasing industry experienced mixed fortunes, much like the ebb and flow of tides corresponding to the boom-and-bust cycles. The pioneer car rental company was Acme Hire-N-Drive, started by Tan Chong & Sons Motor Company in 1963.

The company was also the first to operate air-conditioned tour buses in 1965 and limousine taxi service before licensing was introduced in the late 1960s by the Registrar and Inspector of Motor Vehicles, the forerunner of the Road Transport Department (RTD).

In 1972, Tan Chong bought over Mayflower Tours and merged with Acme to form Mayflower Acme Tours. In Budget 1983, road tax for motor vehicles was raised substantially as a protective measure to facilitate the entry of Proton cars, which came on stream in 1985.

Road tax for a company-owned 5-litre petrol engine car or a 3-litre diesel engine car was raised to RM36,000 a year – more than the market value of most old cars! In contrast, road tax was only RM600 for a 5-litre petrol engine full-size American sedan licenced as a limousine taxi.

Many large and luxurious private cars were converted to hire and drive or limousine taxis. The Commercial Vehicle Licensing Board (CVLB) was swamped with applications for these precious permits and officials involved exploited the situation to enrich themselves.

The country went through a recession in 1985 and 1986 and was severely affected by the Asian financial crisis in 1997 until the ringgit was pegged to the US dollar at RM3.80 to US$1. In between, the country went through an unprecedented and unrivalled boom for almost a decade.

Workers in the private sector then enjoyed high salaries and bonuses compared to public sector counterparts but lost out in later years, more so after this Covid-19 outbreak with many losing their jobs or having their income reduced drastically while civil servants are given more allowances.

During the heydays of the 1990s, every car rental company was worth much more than its book value. This was because it was customary to peg depreciation at 20 percent per annum and after five years, the book value of a vehicle would be just RM1.

Because of high used car prices then, phased-out vehicles could be sold at 60 percent of new car price and disposal of such assets produced a huge lump of non-operating profit. Global car rental companies operating with a few million units and airlines generated profits in the same manner.

Although Mayflower currently operates a few thousand units in the home market, like a handful of other large car rental companies, the margins are now paper thin due to low used car prices. They would incur losses if the fleet were to be insured under comprehensive insurance cover.

Under the motor tariff formulated in the 1970s, comprehensive premiums for hire and drive vehicles were more than 4.7 times that of private cars. Therefore, car rental companies normally insure their fleet under third-party instead of comprehensive insurance cover.

The differences in annual premiums were more than enough to pay for the cost of all repairs for accidental damage plus the total loss or theft of several vehicles a year. Hence, car rental companies self-insure, just like there is no need for the government to pay for motor insurance.

Cost of maintenance

With depreciation and insurance explained, the cost of road tax was never an issue for rental cars and the cost of financing was rather straightforward, the only major cost left is maintenance, which is minimal for private car owners but can be astronomically high for government-owned vehicles.

Apart from those using government vehicles tend to be lax, corrupt drivers and workshops may work in cahoots to jack up repair bills for components that were not replaced or using parts that have been used or switched from other vehicles, which had been rampant in the past.

This forced the government to lease from 1994 instead of purchasing official vehicles to put a cap on expenses. Although the concessionaire could earn a good profit by managing maintenance costs well, the cost is less for the government to lease than to purchase and maintain its own vehicles.

Car rental service could be hourly, daily, weekly or monthly and the vehicles need to be licensed under Kereta Sewa Pandu. The permits are issued by the Land Public Transport Agency and in Sabah and Sarawak by the Tourism, Arts and Culture Ministry.

Although car rental companies could use licensed hire and drive vehicles for yearly rental or leasing, they could also opt to use unlicensed vehicles for leasing. This is legal if the leased vehicles are registered under the names of customers and ownership claimed by the company.

In this way, they could also opt for comprehensive insurance cover under private registration, which is affordable. I should know as I have set up a handful of car rental and leasing businesses and was later engaged by trade associations to write about the car rental industry.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.