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M'sia to open a wider door to foreign carmakers

Publication Date : 21-01-2014


Malaysia has eased restrictions on foreign carmakers by allowing all hybrid and electric passenger vehicles, including small passenger cars, to be produced in the country, as Southeast Asia's third-largest economy tries to boost exports and competes with Thailand for investments.

Changes to the National Automotive Policy (NAP) unveiled on Monday aim to make Malaysia the region's energy-efficient vehicle (EEV) hub by giving new manufacturing licences, grants and tax exemptions to all foreign car manufacturers that bring in cutting- edge technology in hybrid and electric cars regardless of engine capacity and the amount to be invested here.

Previously, only foreign cars with 1,800cc engine capacity and above can be produced here.

Thailand and Indonesia recently launched plans to make small eco-friendly cars of up to 1,500cc.

Government officials said incentives for carmakers will vary depending on the levels of fuel efficiency the technology brings.

The move is seen as Malaysia's strategy to grab market share from Asean's largest car market, Thailand, where a three-month- old political crisis has yet to be resolved.

In the 1990s, Malaysia had the largest auto industry in the region. It lost out to Thailand in early 2000 and then to Indonesia when they liberalised their car sectors more quickly.

International Trade and Industry Minister Mustapa Mohamed said that with the new policy measures, Malaysia aims to increase its passenger car production to 1.25 million cars by 2020, of which 250,000 will be exported.

Currently, the country produces about 650,000 cars, of which 20,000 are for export. In comparison, Thailand produced 1.2 million cars as of last November, while Indonesia manufactured 1.2 million cars last year.

"We are optimistic that Malaysia will once again regain its position as a dynamic car manufacturing hub in the region," Mustapa told reporters at the NAP briefing on Tuesday.

Malaysia has been struggling to move up the value chain in its car industry due to lower exports and technology innovation.

Many put the blame on curbs imposed on foreign car makers to protect Proton, the national car brand.

Currently, the government imposes up to 300 per cent of excise and import duties on foreign cars, making them more expensive so that motorists would opt for Proton or Perodua, the country's second-biggest maker after Proton.

But analysts said Proton's profits continued to languish in recent years due to a lack of economies of scale and an inability to innovate as quickly as its Japanese and Korean rivals such as Toyota and Hyundai.

Mustapa said car prices will fall by up to 30 per cent by 2018 as a result of increased competition and lower import taxes over the next few years.

Analysts said the changes will create business opportunities for the country's car industry while still protecting Proton's operations as the energy-efficient car segment is mainly in the middle and high-end pricing range.

But Proton will still need to buck up.

"As car prices go down due to export markets opening up in the region in the next few years, it will be crucial for Proton to buck up as well," Thomas Soon, an analyst at AmInvestment Bank, told The Straits Times.

Proton has plans to come up with a hybrid car by end-2014.

Daniel Wong, an analyst at Hong Leong Investment Bank, said liberalisation has to be done slowly or else it will kill off thousands of local supply parts vendors and assemblers.

Last week, Honda invested 1 billion ringgit (US$301 million) to set up a research and development centre and expanded its assembly line in Malacca to produce hybrid cars. This is a departure from its usual move of locating such centres in Japan or overseas in the United States and Thailand.

"It may not be the first in Southeast Asia," Wong said, "but it is a good starting point for Malaysia."


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