Malaysia auto industry needs new direction

MALAYSIA is taking a finely balanced approach in its latest automotive policy document. The latest policy stands on three pillars. Firstly, it tries to protect the interests of local car makers who will remain behind high tariff walls. Then, there is an attempt to find a profitable growth niche in the face of coming competition under the 2015 Asean Common Market proposals. As well, the policy is designed to keep the ruling party's political backers happy by retaining the "approved permit" scheme, putatively part of its affirmative action policies to help the Malay community.

Given that Malaysia's car industry as a whole accounts for 550,000 jobs and that Malaysia is almost saturated with motor vehicles - there are more than 20 million cars and motorcycles for a population of just 28 million - the Najib administration's cautious policy stance is understandable. But this strategy is likely to fall short in the face of global realities. To begin with, the global car industry suffers from overcapacity. So unless Malaysian cars become big export items, the industry will remain a small-time player even against regional giants such as Thailand and Indonesia, never mind the rest of the world. Malaysia produced only about 650,000 vehicles last year. Until 2003, it was the biggest passenger car manufacturing nation in Asean. But it has now been overtaken by both Thailand and Indonesia. Last year, Thailand produced more than 1.2 million cars and Indonesia produced about 1.1 million. Both of them continue to attract more foreign investment in the industry than Malaysia.

Under the new policy, Malaysia will make it easier for foreign car makers to get licences to make cars and motorcycles powered by hybrid or electric engines, which will enjoy tax free status until the end of next year. There is an offer of soft loans and grants to the tune of RM2.1 billion (S$801 million). Malaysia hopes to export 200,000 green cars by 2020. But here again, both Indonesia and Thailand have their own energy efficient vehicle projects. For instance, both Japanese car giants Toyota and Honda have spent billions on a new line of low-cost, green cars in Indonesia. Thailand has advanced plans for fuel-efficient city cars as well.