In this issue, i Capital in Section [A] will sum up the similarities of the challenges faced by Thailand, Taiwan and Malaysia during the initial phase of developing their automotive industry, the direction taken by the governments to tackle those challenges and where the automotive industry of these countries stand today. In Section [B], i Capital discusses whether the creation of Proton in itself is a mistake or whether Proton itself and the policies implemented that made Proton a mistake. In Section [C], it will look at the current challenges faced by our automotive industry and whether the National Automotive Policy (NAP) addresses these challenges. In Section [D], it will look at the prospects of our local automotive players which are involved in the distribution, dealership and retailing of motor vehicles. In Section [E], it will look at the prospects of our local automotive parts and components manufacturers.
SECTION [A]: CHALLENGES, SOLUTIONS AND RESULTS
Challenges faced during the early phase
Taiwan, Thailand and Malaysia started their automotive industry by attracting foreign automotive manufacturers to set up assembly plants. All three countries enforced policies such as local content requirements, high tariffs on completely-build-up (CBU) vehicles, etc to gradually increase the local content of the assembled vehicles. However, as can be seen in the early years of development, the localisation effort failed mainly due to two reasons. First, the foreign automotive manufacturers either intentionally or unintentionally flooded the market with various series and models of passenger cars, limiting the ability of local automotive parts and components manufacturers to achieve economies of scale in order to be competitive. Taking Malaysia as an example, in the early 1970s, there were already 114 models of four-wheeler available. Secondly, locally manufactured parts and components were restricted to non-proprietary items (ie tyres, batteries, exhaust systems) and low levels of technology and simple designs and production specifications.
The second phase of the automotive industry development witnessed a divergence in the policies of Taiwan, Thailand and Malaysia. For Taiwan, when the initial phase of automotive policies failed, she changed her course from import substitution to export promotion through the "Big Auto Plan" project. When the "Big Auto Plan" failed to materialise, Taiwan started liberalising the industry gradually starting from 1985. For Thailand, the second phase of localisation that started in 1978 saw the government consolidating the industry by halving the number of series of passenger car that can be produced and limiting the number of models allowed for each series, prohibiting existing plants to add or change models from existing line-ups, prohibiting establishment of new assembly plants, changing calculation of local content from cost-based to technical-based method, mandatory deletion, etc. In the early 1990s, like Taiwan, the Thai government changed its course from import-substitution to export promotion. However, unlike Taiwan, the Thai government had no intention of having an interest in the automotive industry and chose instead to liberalise the industry. As for Malaysia, the second phase saw the creation of Proton to spearhead the development of the local automotive industry.
Thailand, without a national four-wheeler brand, has in 2005 assembled 1.1 mln units of four-wheeler and exported 440,715 units of CBU four-wheeler worth Baht203 bln. In the same year, Thailand's automotive parts and components industry produced Baht88 bln worth of goods. As for Taiwan, after it gave up its intention of having a national four-wheeler brand, the industry players managed to create an automotive parts and components industry for the replacement market. In 2005, Taiwan exported NT$128 bln worth of automotive parts and components. Where does Malaysia stand? In 2005, Malaysia's four-wheeler production was only around half of Thailand's, not to mention negligible exports. As for automotive parts and components, ex-factory sales in 2005 stood at RM5.9 bln and exports stood at RM1.4 bln, which pales in comparison with Thailand's and Taiwan's.