Auto policy makes big pitch to lure energy-efficient vehicle manufacturers

by **Cals** Mon 27 Jan 2014, 01:51

Published: Saturday January 25, 2014 MYT 12:00:00 AM
Updated: Saturday January 25, 2014 MYT 8:51:16 PM
Auto policy makes big pitch to lure energy-efficient vehicle manufacturers
BY JAGDEV SINGH SIDHU
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File picture shows Proton and Perodua showrooms. Should foreign investors come into Malaysia to take advantage of the more liberal market along with cash incentives, Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd will feel the heat from the entrance of new players.

THE national automotive policies over the years had their fair share of hits and misses. Apart from addressing the price of imported cars, predominantly from South-East Asia, they have tried to bring modern practices apart from limited liberalisation of the auto industry.
But the biggest failure of past policies has been in attracting foreign car companies to set up manufacturing plants in the country. And the latest version of the National Automotive Policy (NAP) aims to correct that.
The second version of the NAP in 2009 opened up the manufacturing of cars above 1,800cc and costing more than RM150,000 to foreign players. Unfortunately, it didn’t get any traction.
In 2010, the amount of foreign investments by car manufacturers was RM500mil, and that rose to RM900mil at the end of 2012. As at the end of October last year, the amount of money brought into the country by foreign car players was RM700mil. But that amount pales in comparison with the amount of foreign investments both Thailand and Indonesia have been receiving.
In comparison, domestic car companies’ investment stood at RM1.8bil in 2010 and that amount rose to RM4.1bil in 2012. As at end-October last year, RM2.3bil was invested by domestic companies in the automotive industry.
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“The investments in the auto sector has been quite healthy,” says International Trade and Industry Minister Datuk Seri Mustapa Mohamed during the announcement of the latest NAP on Monday. He acknowledged that there was a cost in maintaining protection of the national auto industry but the national car policy has helped in building a robust domestic auto sector.
Biggest change
The biggest impact of NAP 2014 has been the overall liberalisation of the industry. After spending 18 months to draft the new policy, the ministry hopes that the new roadmap will help accelerate the liberalisation of the auto industry.
The highlight of the policy has been the loosening of protection in the manufacture of cars below 1,800cc by foreign players. In effect, the NAP encourages and invites manufactures of energy-efficient vehicles (EEV).
The departure from previous policies is that incentives for manufacturers of EEV seem more liberalised that what is being offered by Thailand and Indonesia.
In Thailand, there is a minimum investment and production amounts to qualify for its Eco Car status. In Indonesia, its Green Car programme is based more on meeting fuel efficiency and emission standards.
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“Unlike Thailand and Indonesia, the Malaysian EEV policy covers a wide range of vehicle segments including luxury vehicles. So there could be some possible opportunities,” says Frost & Sullivan, Asia-Pacific partner and head of the automotive and transportation practice Kavan Mukhtyar. Under the NAP, EEV are classified based on their curb weight and also fuel efficiency. But as a carrot, the Government is offering grants amounting to RM2bil along with customised incentives to bring in foreign manufacturers and increase domestic investment in the auto industry.
Apart from just concentrating on vehicle manufacturers, the NAP also looks towards growing vendors of skills in the industry.
The component makers have really embraced liberalisation of the industry and are now big exporters of parts. In 2013, the value of parts and components exported was RM5bil and the target by 2020 is RM10bil.
Impact on the national players
Another element of the NAP is the removal of previous protection for the national automotive players. Should foreign investors come into Malaysia to take advantage of the more liberal market along with cash incentives, Proton Holdings Bhd andPerusahaan Otomobil Kedua Sdn Bhd (Perodua) will feel the heat from the entrance of new players.
“Competition in the A and B segments have already started a few years back and with the introduction of the EEV into the market, the competition in the automotive industry will get tougher. We view this development positively as increased competition will only make the industry healthier and more efficient despite the challenges,” says Perodua president and chief executive officer Datuk Aminar Rashid Salleh.
One of the key targets of the NAP is to boost exports. With the export of passenger cars amounted to RM703mil in 2012 and the number of passenger cars exported totalling around 20,000 units last year, the national car makes are very much concentrated on the home market.
But that is expected to change with the national carmakers looking to increase their exports along with the number of models.
In doing so, competition between Perodua and Proton is expected to intensify as both start introducing models that overlap what they are currently doing. It is understood that Proton’s global small car will encroach on Perodua’s market segment and Perodua too is expected to manufacture a sedan for the first time, in doing so will make a car that will be a competitor to a market Proton currently concentrates on.