By Stephanie Jacob
For a long time national carmaker Proton has been at the centre of the automotive industry – what is good for Proton is good for the sector. The government through the Malaysia Automotive Institute, however, wants to move the industry beyond just Proton, by enhancing and improving the industry as a whole.
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Since Proton Holdings Bhd was formed in the ’80s, the national carmaker has dominated the local automotive industry. With Proton placed at the centre, much of the rest of the industry has had to grow around it as a support system dependent on the car manufacturer’s successes and failures.
In fact, past attempts to develop Proton into a regional car manufacturer have meant that other segments in the industry have often been sidelined with the carmaker’s needs being the primary concern.
The National Automotive Policy 2014 (NAP 2014) is perhaps the most comprehensive government effort to zoom out of this overemphasis on the carmakers (Proton and, to a lesser extent, Perodua) and to take a holistic view of the entire automotive industry – in particular the numerous vendors.
The two NAP 2014 objectives which stick out are its aims to develop a competitive and capable domestic automotive industry, and to make Malaysia a regional hub for energy efficient vehicles (EEV) through a focus on green initiatives, the development of technology and human capital, market expansion and the enhancement of the automotive industry ecosystem.
Becoming a regional auto hub
At the heart of the NAP 2014 is the government’s plan for Malaysia to become a regional hub, an ambition which is often seen as unachievable because critics often interpret this to mean that the aim is to increase car sales (total industry volume or TIV) and the Malaysian manufacturers’ exports to the Asean region and beyond.
However, given how far ahead Thailand and Indonesia automotive industries are on this count, many see that goal as unattainable.
It is important to note that protecting or enhancing Malaysia’s national carmakers was not specifically mentioned in the NAP 2014. Rather it called for the enhancement of the industry ecosystem or, in other words, the entire automotive industry.
As a senior industry blogger (who asked to remain unnamed) explained, the NAP 2014 is about more than just Proton or Perusahaan Otomobil Kedua Sdn Bhd (Perodua). He said “the NAP 2014 firmly moves on from focusing on the carmakers. The Malaysian automotive industry is not just about Proton and that is something that people often miss”.
Madani Sahari
The Malaysia Automotive Institute (MAI) concurred with that analysis of the policy. In an interview with KINIBIZ, its chief executive officer (CEO) Madani Sahari said “the NAP 2014 focuses on all areas that enhance the competitiveness of original equipment manufacturers (OEM) and vendors in both manufacturing and after-sales sectors of the automotive industry”.
Madani pointed out that there are over 500 local companies comprising OEMs and vendors which make up the entire Malaysian auto industry and said MAI’s goal was to make them all globally competitive.
So rather than competing with Thailand and Indonesia’s car manufacturing prowess, Malaysia plans to move beyond just being a mere assembly line. An industry analyst opined that it was not enough for Malaysia to merely produce finished cars for sale but said it also needed to become a hub for research and development.
MAI is keen to emphasise the holistic view it is taking and Madani said “while TIV is one way to measure industry performance, Malaysia has bigger goals for the automotive industry. It is key to not just be capable of manufacturing and assembly, but to have full-fledged design, development and testing capability both at the OEMs and vendors levels”.
Therefore the idea of becoming a hub in Malaysia’s context goes beyond just how many cars Proton or Perodua can roll off the assembly line and sell. It’s also a move away from simply encouraging foreign companies to just assemble cars in Malaysia.
Essentially MAI and the government want the local automotive industry to generate a higher value economy. This includes getting OEMs to come into Malaysia to work with the many vendors to create value-added products locally which will then be marketed regionally.
It also means developing local vendors so they are capable of catering to more than just the local carmakers (many vendors currently cater almost exclusively to Proton).
Creating a holistic automotive industry
Assuming MAI is allowed to stick to its vision of developing a holistic industry, Proton and to a lesser extent Perodua will lose their privileged places in the automotive industry. Under the NAP 2014 a German or Japanese carmaker who sets up shop in Malaysia is as eligible to receive incentives from the government as the local carmakers are.
MAI was keen to point out that this has always been the case and said what many have called protection is in fact facilitation or incentives by the government which are given to those who produce locally. So if a carmaker produces its vehicles locally, they are eligible for the incentives regardless of where they come from.
That is by no means a view which is shared by everyone. Facilitation or incentives can be seen as means to circumvent free trade by effectively providing tax and other subsidies to those who produce locally, giving them a cost advantage over imported vehicles.
An industry analyst opined that in the past there have been three separate markets in Malaysia: one comprising Proton and Perodua which fall under the category of national cars manufactured locally; two, the completely knocked down (CKD) category where cars are assembled and get some incentives but not as much as the national cars; and another market for the rest of the brands which are largely completely built up (CBU) which receive no incentives.
The NAP 2014 aims to get all these brands to compete within the same market through liberalisation which will encourage them to produce CKD cars. This will lead to competition which in turn is expected to bring down car prices.
Can Proton and Perodua survive?
This liberalisation of the market especially in the 1,800cc segment has led to concerns over its impact on Proton and Perodua, given that most of their models traditionally fall into this category.
However, analysts suggest that categorising cars by engine size is an outdated method and these days cars are segmented based on their fuel efficiency or carbon emissions. He said this explained the NAP 2014’s focus on EEVs and why it is encouraging local carmakers to develop such models.
Madani believed that local carmakers are seeing the benefit of developing an EEV. “Proton and Perodua have been working in line with the NAP 2014 to produce EEVs. Perodua has introduced the Axia which has been well received by consumers,” he said.
Although unlike Perodua, Proton did not have an EEV-ready engine, the company has said it is in the process of developing it.
“Proton is heading in the EEV direction via their electric vehicle (EV), hybrid and ICE (internal combustion engine) programmes. In general, the domestic industry players are realising the opportunities for an EV policy and are working extensively towards the goals set under the NAP 2014,” said Madani.
MAI emphasised it is willing to work with Proton or any other carmaker developing its own EEV programmes in Malaysia. The latter half of that promise has already been seen with the likes of Honda and Mercedes-Benz establishing a presence locally.
When will car prices fall?
With the current tax structure and excise duties set to stay, MAI plans to reduce car prices naturally by liberalising the local CKD market to draw in various brands and encourage competition.
Furthermore by encouraging vendors to improve their products and helping them grow their markets, MAI hopes to see quality rise and prices of these parts fall. This is turn will make building the cars cheaper and ultimately lower car prices.
In essence MAI’s challenge will be to convince foreign brands to not just bring their assembly lines to Malaysia but also begin developing and innovating here locally. If it can achieve that it will be able to upscale the automotive industry which will improve quality and efficiency, and this will ultimately be good for consumers.
Yesterday: Perodua and Proton – the difference between life and death
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