NAP Bad for Malaysia's Auto Industry

There's a deafening silence on the new National Automotive Policy and that's of immediate concern to the non-national car makers.

Either the non-national makers we spoke to have been sworn to secrecy, or it's true that they haven't been contacted by the policy advisors.

In all probability, most haven't been consulted. Taking the position therefore that the non-national car makers have not been consulted, then where are the policy drafters getting their advice from?

Either they are doing it purely from data or they are listening only to the national car makers, Proton and Perodua, or a combination of both.

In all the above cases, it's a strange oversight of a major sector of the economy.

On the other hand, it could be the second pincer of liberalization following the disbandment of the Foreign Investment Committee (FIC) and its outdated 30 per cent Bumiputera equity policy.

Imagine what would happen if the government were to remove the import tariffs that make the Honda Jazz (1.6 litre RM104,000) cost more than double of the Perodua Myvi (1.3 litre RM43,000). Both are similar in body size and configuration and appeal to the same market demographics except that the Jazz in Malaysia has a 1.6 litre engine.

Without tariffs, Honda would probably price its Jazz at say RM65,000 so that as a premium brand it retained a premium over competing models like the Myvi.At that price, sales of the Jazz would zoom up from its average of 50 units a month as sure as the sun rises in the east.

The market sector of the Myvi 1.3 litre model is about 6,000 units a month and a Honda Jazz 1.6 priced at RM65,000 would conservatively take 700 unit sales a month.

At that rate, Honda Malaysia would definitely set up a CKD line for the Jazz at its Pegoh plant. Subsequently, because of the size of the Malaysian passenger car market, it would also be driven to set up Malaysia as the regional hub for Jazz.

Honda and Nissan are the two Japanese players that would capitalize on the liberalization of the Malaysian automotive market. Logically, they would like to spread their assets in the region.

What would be the cost and benefit of liberalisation? It would mean an erosion of market share for Perodua, and, to a lesser extent, Proton. The benefit would be a growth of the automotive sector because of foreign direct investment from the Japanese and South Korean car companies.

The justification for protecting Perodua is wafer thin. Beyond the fact that its models are locally assembled models from Toyota and Daihatsu, the fatal flaw to the argument that it will help Malaysia achieve the status of regional automotive hub is that Perodua will not be allowed by its model copyright owners to export in any volume.

It is thus a mere import substitute company, unlike Proton which owns the copyright to its models and can thus export to anywhere that it deems commercially viable.

The liberalization of the Malaysia Automotive sector is therefore as strategic as the removal of the mandatory 30 per cent Bumiputera equity policy on KLSE-listed companies.Thailand's gain in the regional automotive industry was not because it was any better than Malaysia in the early 1990's. It was because Malaysia with its protection of the national car sector became a no-go zone for foreign car makers.

The modernization of the national automotive policy is urgent because even in spite of the new theory that globalization will wind down because of the looming finiteness of oil and gas, there is still a regional automotive market of almost 600 million people in Asean. The market potential is tremendous when viewed from the context of the vehicle penetration rate which is very low compared with the US, Japan and Europe.

As things stand now, South Korean companies like Kia and Hyundai are looking favourably at Thailand as a regional production base. And this is a ridiculous situation when it's so obvious that Malaysia is the largest car market in the region for both Kia and Hyundai.

And yet that is what the NAP has done to Malaysia. Remove the protectionist policies and the Malaysian automotive sector will soon again become the lion of the region.

 By Yamin Vong