Learning from others

POSTED BY admin ON 01 April 2012

This is a continuation from our quarterly review series centre spread story Going Beyond Hybrids. This article first appeared in March-28’s edition of CBT Quarterly Review.

Since April 2004, Japan practiced a multi-tiered tax incentive based on a vehicle’s fuel consumption and exhaust emission.

Under the Ministry of Land, Infrastructure, Transport and Tourism’s “Environmental Performance Certification” system, cars are classified based on their weight category and given a specific fuel economy and exhaust emission target.

Enforcement of the weight classification is not difficult as Japan already have a system of taxing vehicles based on their body size and weight.

All new vehicles must display their certification stickers on the rear windscreen. Initially, tax breaks were given for models that surpass their fuel economy and exhaust emission target by 5 per cent. By 2008, these were increased to 15 per cent.

Fuel economy and emission label in Japan

Although Japan is the world’s capital for hybrid vehicles, the government is aware of the high cost and limited benefits of promoting hybrids in the near term. Careful attention was also given to promote fuel efficient internal combustion engines.

Under the ministry’s multi-tiered tax incentive, cars that exceed their fuel economy by 15 percent are given a 50 per cent rebate in both tonnage tax and acquisition tax.Cars that exceed their target by 25 per cent enjoy a 75 percent rebate and an additional 50 per cent rebate on automobile tax.

Hybrids and electric cars are completely exempted from all taxes. On top of that, they receive an additional 100,000 yen (RM3,7310) subsidy.

The incentive will continue until 2015.

The policy has been very successful. Average CO2 emission of passenger cars in Japan is down from 170 g/km in 2004 to just 141 g/km and is well on track to meet Japan’s target of 130 g/km by 2012.

When the European Union tightened its fleet wide CO2 emission to 120g/km this year, Japanese car makers were well prepared to take on the challenge.

Average fuel consumption of passenger cars improved from just 15.4 km/litre in 2004 to 18.7 km/litre in 2010.

What the Japanese government lost in tax revenue was returned in the form of measurable improvement to the environment, which in turn brings further benefits in improved health of its people, reduced oil imports as well as spurring the Japanese automotive industry to stay ahead in producing environmental friendly cars.

In the past, Thailand’s automotive industry was focused on pick-up trucks. Considering the importance of the agriculture sector and poorer road conditions of rural Thailand, this made sense in the late ’80s when the original Thai industrial master plan was formulated.

While pick-up trucks served as a dual-purpose vehicle and formed the backbone of Thailand’s entrepreneurial class, it was both a guzzler and polluter.

As Thailand progressed, there was a gradual shift in demand from pick-up trucks to passenger cars, especially in urban areas. Toyota was the first to respond to this when it introduced the Toyota Soluna sedan, precursor to the Vios.

Noting the trend on growth of small fuel efficient cars, the Thai government worked to adapt its current automotive policy to ensure Thailand remained an important auto manufacturing hub.
In 2007, the Thailand Board of Investment announced an eco-car incentive to promote the production small fuel efficient cars.

Eco-car projects are exempted from corporate income tax for eight years, and pay no duty to import machinery.

An additional offer from the Thai Ministry of Finance provides a lower 17 per cent excise tax rate on eco-cars that have engines smaller than 1,300cc for petrol engines and 1,400cc for diesel engines (current excise tax rate is between 30 per cent and over 50 per cent for normal passenger cars).

Requirements to qualify for eco-cars are:
• Minimum investment value of approximately US$144 million (RM443.4 million).
• Actual production capacity must not be less than 100,000 units per year from the fifth year of the project’s operation.
• Fuel economy rating of not over 5 litres per 100km or 20km per litre.
• Comply to at least EU4 emission standard with CO2 emission below 120g/km.
• Comply to UNECE Reg 94 and Reg 95 frontal and side impact crash safety standards.
• The production of a minimum of four out of the following five key engine parts are mandatory to receive promotion privileges: cylinder heads, cylinder blocks, crankshafts, camshafts and connecting rods. The manufacture of cylinder heads, cylinder blocks and crankshafts must start at the machining stage.

To prevent manufacturers recycling old designs, manufacturers are required to come out with a new design not currently on sale.

Several manufacturers responded positively. Nissan was the first to launch an eco-car model, the Nissan March, followed by Honda (Brio) and most recently the Mitsubishi (Mirage) and Suzuki (Swift 1.25).

Eco-cars retail at around RM40,000 in Thailand.

Thailand is one of the two global hubs for the Nissan March (besides India). The Thai-made March is exported throughout Asia, including Japan and European Union countries.

Japanese consumers have very high expectations on product quality. Nissan’s decision to import the March from Thailand underlies its confidence on the quality Thai manufactured cars.

With a fuel consumption of 22 km/litre, the Mitsubishi Mirage is now one of the most fuel efficient non-hybrid car on sale in Thailand. Starting price in Thailand is just RM38,000, making it not only one of the most fuel efficient but one of the cheapest cars on sale.

Mitsubishi Motors have high hopes on the Mirage. A brand new RM1.6 billion plant in Laem Chabang was built to support the Mirage project. The plant is Mitsubishi Motor’s largest outside Japan.
This is the direction that the Malaysian automotive-transport energy policy should aspire to achieve, promoting affordable fuel efficient cars for the people and collectively moving the industry forward.


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