Malaysia, which has struggled for years to market a national car, is expected to face an uphill battle in its renewed effort to compete head-on with the likes of Thailand to lure global automotive makers to set up production facilities in the country.
The Kuala Lumpur government late last month announced a series of incentives that it hopes will make the country of about 29 million attractive to many of the foreign players that are already well established in Thailand or Indonesia.
The incentives under the National Automotive Policy (NAP) 2014 are aimed in particularly at companies seeking to manufacture energy-efficient vehicles (EEV).
A lot of the incentives will be linked to the degree of investment and value added, so the benefits will be greatest for original equipment manufacturers that are able to make greater commitments.
In announcing the moves, the authorities in Malaysia said that they wanted to make Malaysia the hub for the environmentally friendly vehicles Thailand would continue to hold the crown for one-ton pickup trucks.
“We hope this National Automotive Policy (NAP) 2014 can enable us to become the energy-efficient vehicle hub in Asean in the future,” International Trade and Industry Minister Mustapa Mohamed said while making the announcement.
He said the policy was a long-term plan that the country hoped to achieve by 2020. By that time, he said, Malaysia aimed to export 200,000 energy-efficient cars a year, achieve $3 billion worth of car component shipments, and create 150,000 jobs.
Mr Mustapa said three automakers were in talks with Malaysian officials. He did not name them but contacts made by Asia Focus contact with some of the world’s leading manufacturers showed that none were strongly interested in adding production capacity in Malaysia.
They say Malaysia is too small a market to justify a new assembly operation, while at the same time there is a lack of supporting industries, which is a key deciding factor for any automaker seeking a base in a new country.
Toyota Motor Corp said Malaysia’s attractiveness as a hub for energy-efficient vehicles was limited. Kyoichi Tanada, president of Toyota for Asia Pacific, said that expanding investment in Malaysia would not be easy.
“Thailand is still in a better position given the size of market; therefore increasing production in Malaysia is not easy,” he said.
Toyota this year is forecasting local and export sales from its Thailand operations of 1.15 million units, including 400,000 vehicles for the domestic market, which represents 62% of the total market size in Malaysia.
Toyota sold between 90,000 and 100,000 vehicles in Malaysia last year compared with 445,000 in Thailand. Overall, 652,000 vehicles were sold in the country, more than half of which were from Perodua and the DRB-Hicom unit Proton, government officials have said.
This compares with 1.33 million vehicles sold in Thailand and 1.22 million in Indonesia.
Malaysia under the NAP 2014 will let foreign companies such as Japan’s Mazda and Honda make small hybrid cars in Southeast Asia’s No. 3 economy, which is competing with Thailand and Indonesia to be the regional hub for low-emission vehicles. Malaysia, which until now only allowed foreign companies make larger cars, plans to offer new production licences, grants and lower taxes, just as flooding and political instability thwart Thailand’s push to boost output and demand of small, eco-friendly cars.
Malaysia — known for the beleaguered national car Proton— wants to develop the auto market as part of a broader drive to achieve developed-economy status by 2020.
Up until now only Japan’s Mazda Motor Corp and the local manufacturer Perusahaan Otomobil Kedua (Perodua) have pledged 2.25 billion ringgit (US$682.44 million) for investment in energy-efficient vehicle production, Mustapa was quoted as saying by Reuters. The new policy opens the way for foreign automakers to produce gasoline- and battery-powered passenger cars with engine sizes of 1.8 litres or smaller, Mustapa said.
This would immediately benefit Honda, which already has a hybrid car manufacturing plant in Malaysia, as well Nissan Motor Co Ltd, which has production facilities and a distribution network for gasoline-powered cars.
Malaysia was Southeast Asia’s automotive hub before being overtaken in the early 2000s by Thailand, which has followed a more open policy toward foreign carmakers setting up factories and selling cars domestically.
The government says the NAP, if successful, will have the benefit of pushing down car prices by between 20% and 30% by 2017. Eighty-five percent of the vehicles produced in Malaysia will be energy-efficient models by 2020.
By then, the country is expected to make 1.25 million cars annually with exports of at least 200,000 units.
But the most urgent task in the short term to get the NAP rolling is a review of approval permits, something the government promises to look at this month.
Malaysia started it automotive journey in 1983 with Proton, the national car company that produced cars with engines of 1,000cc and above. Then came Perodua, producing cars below 999cc.
Industry observers have said the current policy is not investor-friendly as it does not allow foreign makers to invest in making vehicles with engines of 1.8 litres and below without a local partner.
But the NAP is set to change that because Malaysia needs to catch up with its neighbours.
While Malaysia protected its players, Thailand and Indonesia — the two most populous countries in Asean — welcomed foreign investors with open arms.
Thailand has a thriving auto industry and continues to promote itself as the “Detroit of the East’’, a title coined by BusinessWeek magazine almost two decades ago.
Indonesia has also taken advantage of rapid growth in demand to position itself as the centre for MPVs while, some of which are now exported to Thailand, while Thailand is famous for its pickups.
NICHE MARKET?
Malaysian officials believe that with the NAP they have identified a very promising niche in smaller, greener vehicles, and that if they work hard enough they will reach their goals. If Thailand is famous for its pickup trucks and Indonesia for MPVs, Malaysia’s strength is in the passenger car market.
Having missed the opportunity to draw large-scale investment earlier in the auto sector, the government has cast the net again with the NAP.
The thrust of the new plan is to win more foreign investment and spur local and export sales by becoming the energy-efficient vehicle (EEV) hub in Southeast Asia.
However, both Thailand and Indonesia have also had a head start in eco-car or green car initiatives.
The incentives offered under the NAP will allow foreign makers to produce EEVs without the need for local partners. To get them to bring in EEV technology and investment, they will receive incentives such as “pioneer status”, investment tax allowances, grants, soft loans, infrastructure facilitation and lower excise duties.
Hybrid vehicles assembled in the country will continue to receive excise and import tax exemptions under the NAP.
The NAP does address competitiveness, skills and capabilities, as well as supporting industries — and should make the local sector more open and competitive.
The fact is, Malaysia cannot afford not to liberalise its auto sector, or else its ambitions of being a big player in Southeast Asia will remain a dream.
In view of that, even the two local carmakers are revising their strategy. If previously Proton could only make and sell cars with bigger engines and Perodua smaller ones, now the floodgates are open for both to compete.
But the dreams of Malaysia could meet with disappointment as global players appear reluctant to make a move.
BMW, the world’s largest luxury automaker, expressed a similar view to that of Toyota, saying Malaysia was too small a market for it to justify making an investment there.
“Thailand, despite the short-term upheaval in the country, still has a good infrastructure and the supporting industries for the auto sector to grow, but BMW always looks at the possibilities of new plants, and one key deciding factor in setting up a plant is the size of the industry and that is clearly with Thailand,” said a senior executive from BMW.
BMW, which has been assembling various products in Thailand including its Mini, BMW sedans and motorcycles, said it remained committed to Thailand.
Ford Motor Co, one of the largest investors in the region, said it welcomed the move by Malaysia but that Kuala Lumpur’s decision would not affect Thailand.
“The change to Malaysia’s auto policy will have no impact on our Thailand investment strategy,” Neal McCarthy, head of Asean communication, said in an e-mailed response to questions from Asia Focus.
He said Ford welcomed Malaysia’s decision to further liberalise its industry to allow greater participation from foreign automakers and create a fully level playing field.