/ 26 May 2009

Malaysia seeks to revive car industry with new policy

Malaysia may remove rules that protect its car industry from foreign competition, officials said on Tuesday, as the government presses ahead with a review of the cosseted industry.

Deputy Prime Minister Muhyiddin Yassin said the government hopes to complete a review of its three-year-old car policy by September to boost investment in the industry, which, like other sectors of the economy, has been hit hard by the global economic slump.

”The [car] industry in Malaysia needs to be energised and revitalised,” he told a two-day car conference in Kuala Lumpur.

”It cannot continue to depend for too long on government protection. The industry must focus on operations and cost efficiency to reduce cost, increase productivity and sell more through innovative marketing strategies,” he said without elaborating.

Malaysia is Southeast Asia’s largest passenger vehicle market, with about half a million vehicles sold annually. The domestic market is dominated by national carmaker Proton and a second national company Perodua.

In 2006 the government reduced import taxes on most imported vehicles and lowered car prices to make Malaysia a regional car hub. But it still has high taxes on locally assembled foreign cars and privileges are given to national carmakers.

Recently banks hiked lending rates for foreign cars, giving an unfair advantage to national cars.

Meanwhile, Malaysia is facing stiff competition for investment from neighbouring Thailand, which has gained a reputation as ”Detroit of the East”. With no domestic carmakers, Thailand has become a regional base for many global carmakers by offering better tax incentives and removing ownership constraints on plants or subsidiaries.

”We are looking at a policy that will not make Malaysia lose again,” Kamaruddin Ismail, the Trade Ministry’s deputy secretary-general, told the conference.

”We cannot continue to have protectionist policies forever. We have committed to open up for the [car] sector,” he said.

But Proton and Perodua officials cautioned that any further liberalisation must be done gradually and not harm local companies.

Syed Abdul Hafiz Syed Abu Bakar, managing director of compact carmaker Perodua, said even governments in Europe and the United States are now bailing out their domestic carmakers amid the global slump.

”We should not be afraid to protect ourselves. At the end of the day, it’s every country for themselves. We have to liberalise but it must not be overnight. It must be done in stages,” he told reporters on the sidelines.

Perodua has been the top selling car brand in Malaysia for the past three years.

”The mind-set has changed. The very same countries that advocate free trade are now” protecting their own companies, said Proton managing director Syed Zainal Abidin Syed Mohamad Tahir.

He said production capacity in Malaysia is at 800 000 units a year, but only half of that is used. He urged the government to consolidate the industry to cut excess capacity and give export incentives to local carmakers.

Muhyiddin also said the government will promote ”green and clean technology” for vehicles as part of its new policy. Special focus will also be given to encouraging the development of the car parts and components sector, he said. — Sapa-AP