You may have come across the terms CKD cars and CBU cars if you are looking to purchase a car.
CKD refers to cars that are Completely Knocked Down while CBU stands for Completely Build-Up. While all cars are made at their brand’s manufacturing plants, CBU cars are imported as a whole unit while CKD cars are bought in parts that are assembled in the target country.
What are CKD Cars?
Completely Knocked Down cars are cars that will be assembled locally in the target country’s manufacturing facility. Car parts are sent to the target county and will have to be put together before the vehicle can be sold. Parts like tires, windows and headlights might also be sourced locally.
CKD cars are usually high volume models, qualifying for CKD incentives such as lower import duty. While this results in lower car prices, there is longer waiting time for CKD cars. The Honda City, Honda Jazz and Honda CR-V are some examples of CKD cars in Malaysia.
What are CBU Cars?
Completely Built-Up cars are fully assembled, operable vehicles that are imported (or exported) to another country. Thus, CBU cars are ready to be sold as they do not require any assembly.
However, CBU cars have very high import duties, resulting in final selling prices that are incredibly high. An example of a CBU car in Malaysia is the Honda Odyssey.
CKD and CBU Cars – Pros and Cons
CBU Cars Pros
- Purchase on release
CBU cars cons
- Higher import duties
CKD cars pros
- Lower import duty
- Local material that is suitable for local driving & weather
- Local assembly factory creates jobs
CKD cars cons
- Long waiting time
Sometimes we may have the impression that CBU cars are better than CKD cars because foreign cars may seem to have better quality due to better workmanship and all the imported car parts.
However, this is not the case. Every car factory needs to observe strict global production standards regardless of where the factory is located. This is to ensure that every car that is sold is of good quality with good workmanship, and is safe for its occupants.
In addition to this, it is much easier to set up an assembly factory with machines that can put together the car parts as compared to a manufacturing plant that builds a car from scratch.
There are several benefits to purchasing a CKD car. Firstly, certain CKD cars qualify for government incentives and tax breaks. The total incentives depend on the local content of the cars. This results in cars that will have a better price and/or better equipment and quality.
Since it is assembled locally, it is also much easier to find car parts for CKD cars as compared to CBU cars. You will definitely be able to source for replacement parts from local car part dealers. Additionally, some CKD car parts may even be more suitable for the target country.
For example, CKD cars that are built in Malaysia may have an air conditioning system made from local materials that is much more suitable for our hot and humid weather.
A clear example of this can be seen in the imported CBU Toyota Prius and the CKD Toyota Camry Hybrid. The Camry’s hybrid battery which was sourced locally performed much better than the Prius’ imported one.
The assembly of CKD cars also benefits the local economy, in the sense that it creates many job opportunities in the country where the cars are being put together. This is one of the reasons why governments have a lower tax for these cars.
The only advantage that CBU cars have over CKD cars is the fact that new car models that are released are very likely to be CBU cars. You will have to wait for a minimum of 6 to 12 months before the CKD version is available in the market. If you can wait, your patience will definitely save you a few thousands.
CKD in Malaysia
In Malaysia, only CBU vehicles were available before independence in 1957.
The automotive industry was part of the quick economic growth that happened after independence. Less than 10 years after independence, foreign automobile manufacturers and local businesses teamed up to produce CKD cars. The Malaysian government was also in favor of this as it created many jobs as well as started a market for locally produced car parts.
In addition to the many job opportunities that were generated by CKD assembly plants, the knowledge and technology transfer resulted in the production of Proton, Malaysia’s national car.
The two main pioneers in this field in Malaysia are Capital Motors Assembly (Tan Chong Motors) in Johor which assembled Datsuns and the Swedish Motor Assemblies (Volvo Car Manufacturing Malaysia) in Shah Alam which assembled Volvos.
Another player in the early stages of CKD cars in Malaysia is Kilang Pembena Kereta-Kereta (KPKK). KPKK put together Fiat and Mitsubishi cars and was also located in Johor.
These days, there are numerous brands that assemble their cars locally in Malaysia. Among some of the brands that have CKD operations in Malaysia are Toyota, Volvo, Mercedes-Benz, Honda, Nissan and Mazda.
CKD & CBU Price Difference
The biggest difference in CKD and CBU cars is its pricing, and this is one of the main factors when deciding which one to purchase.
Generally, the import duty for CBU cars is 30% while CKD cars have an import duty of 10%. The 20% difference in the import tax makes a massive difference in the final car price.
For example, the Mercedes-AMG C 43 sedan cost RM499,888.00 when it was first brought in as a CBU unit. However, since the start of it being assembled in Malaysia, the price has dropped significantly to RM421,888.00 which is a price difference of RM78,000.00.
Exceptions to the Rule
While CBU cars are usually more costly than CKD cars, there are some exceptions to this rule. Because of the ASEAN Free Trade Area (AFTA) and the ASEAN Trade in Goods Agreement (ATIFA), there is no import duty on CBU cars that are produced in an ASEAN country.
The 0% import duty means that in some cases when a CBU car is manufactured in an ASEAN country, it could be cheaper than a CKD car that is assembled locally. As this only happens sometimes, it is important to do your research and ask your local dealers which is the better option before making your purchase.
Besides import duty, you will also need to fork out local taxes that consist of excise duties and sales tax. While sales tax is 10% for all vehicles, excise duties increase as engine capacity increases. Thus, with import duties as well as local taxes, the price of foreign-made cars in Malaysia can be quite steep.
Having said this, in light of the COVID-19 pandemic, the Malaysian government has put into place the Short Term Economic Recovery Plan (PENJANA) to stimulate the economy. Under PENJANA, it was announced that there will be a 100% sales tax exemption for CKD cars and 50% sales tax exemption on CBU cars. This exemption will be effective from 15th June 2020 to 31st December 2020.
As the sales tax is 10%, the exemption given can total up to quite a substantial amount. For example, the CKD Honda City will be lower by RM3,169.00 while the CBU Honda Odyssey will be lower by RM9,500.00. So, if you are looking for a vehicle, and have the means to make a purchase, it would be wise to give some consideration to this offer.
Where your car is put together should not be given too much weight. Whether you choose CKD or CBU, what matters is the specs, features and performance of the car. Assess what you need the car for, decide on your budget and do some research before making your purchase.
The main difference between CKD and CBU cars that you might want to consider is the price difference, with CKD cars being cheaper while giving you the same, or sometimes, even better quality. If however, you prefer CBU cars, do note that manufacturers rarely offer both CKD and CBU versions of the same models at the same time. This means that you will have to make your purchase before the CKD version is out.
For more information, visit your nearest Honda dealer and service centre.