NAP a path of progressive liberalisation, says Frost & Sullivan

by **Cals** Fri 24 Jan 2014, 16:24

Business & Markets 2014

Written by Shalini Kumar of theedgemalaysia.com

Friday, 24 January 2014 09:41

KUALA LUMPUR: Malaysia has chosen the path of progressive liberalisation rather than a disruptive one, as indicated by its new National Automotive Policy (NAP), said Frost & Sullivan.

“We view the new NAP as a first step in a journey towards progressive market liberalisation. Over the next four to five years, a series of follow-up measures to liberalise the market further are necessary,” the consulting firm said in a report yesterday.

Frost & Sullivan believes the country’s energy-efficient vehicle (EEV) policy offers a “great degree of flexibility” for a potential automaker interested in investing in Malaysia.

“It is likely that the extent of incentives will depend on the automakers’ level of investment and localisation commitment. However, from an automaker standpoint, their commitment will depend on the extent of incentives available,” it said.

The EEV policy covers a wide range of vehicle segments and powertrain technologies. Vehicle segments covered include the A to J segment of passenger vehicles as well as two-wheelers, and the policy itself has no investment conditions.

By comparison, Indonesia and Thailand’s green vehicle policy focuses only on internal combustion engines of smaller cubic centimetres with stringent price, production, investment and export conditions.

“Apart from incentives, automakers interested in the EEV programme will consider other market demand and supply chain strength factors. The potential EEV market needs to be large enough for the investments to be economically viable,” said Frost & Sullivan.

It also believes the success or failure of the EEV programme will depend on the speed and clarity with which it is implemented.

Automakers which have yet to commit substantial investments in the region or would like to diversify their geographical risk will be the high potential prospects for investments.

“If Malaysia offers a clear and attractive package, then there is a possibility to attract some part of the next wave of investments,” it added.

The consulting firm also warned that auto part vendors need to realise that the market is being liberalised and they cannot depend on past relationships to secure their future.

“Consolidation of capabilities should be encouraged so that Malaysia can develop a group of globally competitive auto part vendors that can grow regionally. Capability development grants should be linked to a transparent approach to continuously monitor the progress of the vendors towards competitiveness,” it said.

As for the gradual decline in car prices, Frost & Sullivan thinks that it will only have an impact on newly launched models or variants.

“With the current fiscal constraints, we do not expect a review in taxes in the immediate future. Thus prices will go through a process of incremental downward adjustments rather than a sharp decline.

“The push to EEV will also focus on bringing down the overall cost of ownership which will benefit consumers in the longer run,” it said.

This article first appeared in The Edge Financial Daily, on January 24, 2014.