Published in Wards Auto on 11 July 2016

 

Myanmar’s potential market for new cars is significant, but growth is hampered by regulatory uncertainty. Although it has a population of 51 million, only 5,000 new passenger cars were sold in the last financial year.

“The future is very good, potentially. But right now it’s a very primitive market,” said Htoo Aung Lin, executive committee member of the Authorised Automobile Distributor Association (AADA), which represents the new car industry.

Car imports were effectively banned under the military regime until September 2011. Half a million cars were imported during the quasi-civilian government’s five year tenure that ended in April this year. The sudden influx of vehicles caused congestion in the commercial capital of Yangon – and a number of arguably misguided policies designed to lessen it.

Parking permit woes

Yangon’s municipal authority introduced a policy in January 2015 that requires individuals applying for a car import permit to prove they have a parking space.

The policy created a black market in parking permit recommendation letters, which cost approximately MMK700,000 (USD585,000). When Myanmar’s first democratically elected government in 50 years came to power in April, it did so on an anti-corruption platform. It promptly cancelled the issuing of parking permits.

On June 20, the government’s Supervisory Committee for Motor Vehicle Imports announced it would allow certain commercial vehicles to be imported. Passenger cars, however, remain subject to the permit requirement.

“It’s a rough patch we’re going through and businesses are suffering,” said Michael Rudenmark, Managing Director of Automotive at Yoma Strategic Holdings. Singapore-listed local company Yoma is the importer and distributor Volkswagen, Bridgestone tyres and distributor for Mitsubishi.

He predicts sales will be down 20 percent this year and that it’s too early to tell whether the new government will be more business friendly.

Most expressed optimism that it will adopt longer-term policies that are properly enforced.

“I’m sure the new government doesn’t want Myanmar to keep being a dumping ground for used Japanese vehicles,” said AADA’s Htoo Aung Lin.

When asked whether the regulation has hampered sales, Mr Eak said: “To a certain extent. Orders are still strong, although some buyers did drop out due to the parking permit issue.”

Dr Soe Tun, president of the Myanmar Automobile Manufacturer and Distributor (MAMD), which acts as a bridge between policy makers and the private sector, said a Japanese policy is ineffective in the context of Myanmar.

“In Japan, authorities will go to a car owner’s house to check the address registered. In Yangon the permits are fake and there’s no public or private parking.”

MAMD submitted 16 proposed solutions to lessen traffic congestion to the government two months ago, but none have been implemented. He said that as many as 80 percent of vehicles are sold in the commercial capital of Yangon.

Right-hand drive on left hand roads

Another challenge is used car imports, the bulk of which are right-hand drive (RHD) Japanese or Korean brands. As a former British colony, cars in Myanmar drove on the left side of the road until 1970, when the superstitious dictator General Ne Win changed the law overnight because his astrologer believed the country had moved too far to the political left.

“The biggest challenge for the importers and distributors of new LHD cars and trucks is primarily used car imports. While there have been some moves to curtail [RHD used cars] imports on the basis that they are clearly unsafe and do not meet the legislated left hand drive requirement, progress has been slow,” said Mike Pease, Ford General Manager at Capital Automotive Ltd.

Chevrolet opened one of its largest showrooms in Southeast Asia as a joint venture between Singapore’s Alpine Group and Myanmar’s AA Medical Group in November 2014. According to General Manager Samuel Eaks, the company sold 250 units last year and is number two for new passenger cars, with Mazda placed first and Mercedes, third.

“I wouldn’t say Myanmar’s market is crowded with brands yet, but it’s becoming more so day by day,” said Mr Eaks.

He said that when he came to Myanmar two years ago, the new car market was less than one percent of all registered, whereas data from the Road Transport Administration Department shows it’s grown to three percent.

However many in the industry complain that the sector is widely over-taxed.

“It seems that the government sees the car industry as an easy target for collecting tax,” said an industry insider who declined to be named.

Tax on commercial vehicles is comparatively lower than on passenger vehicles, which is in part because Myanmar’s economy is driven by agriculture.

“The new car segment is 70:30, with 70 percent being commercial and 30 percent are passenger,” said Yoma’s Mr Rudenmark.

Local manufacturing scope limited

Due to Myanmar’s proximity to major manufacturing hubs such as Thailand, the potential for local assembly is negligible.

“You have countries manufacturing cars next door and free trade [in ASEAN] soon – why would you move all that just to please a very small market?” said Mr Rudenmark.

Around 800 Suzuki vehicles are assembled in Yangon annually and Nissan is currently building an assembly plant in Bago, which is 91 kilometres from Yangon.

“… the investment required in local assembly requires a combination of a strong domestic sales base together with supportive government investment policies. At this stage the size of the market for LHD new cars is small which makes the business case challenging,” said Ford’s Mr Pease.