SECTION [C]: THE CHALLENGES

The first challenge is to attract foreign car manufacturers to commit themselves to make Malaysia a regional passenger car manufacturing hub. The mixed-bag policies being implemented by the government have been a deterrent to the foreign car manufacturers to commit themselves. On the one hand, the government wants foreign car manufacturers to increase their commitment in building up our local automotive assembly industry. On the other hand, the excise duty and import tariff imposed on certain foreign car models are made cheaper when imported in CBU form rather than in CKD form and assembled locally.

The second challenge is, how can we turn around a national marque that is complacent and is completely uncompetitive in terms of price and quality, lacking new models in its pipeline, has a huge unutilised capacity at its Tanjong Malim plant, and does not fit into any of the global automotive value chain?

The third challenge would be, how do we deal with the existence of too many automotive parts and components vendors that do not have scales to be competitive? It is strange that not only are most of the vendors supplying to Proton alone, but also they are supplying parts and components only for a particular model of Proton.

The fourth and definitely the most important and the most difficult challenge would be to turn our local automotive industry from a local demand oriented industry to an export-oriented industry.

The National Automotive Policy (NAP)

What does the NAP have in store for the Malaysian automobile industry? The policies under the NAP can be summarised as promoting development, rationalisation and liberalisation of the automobile industry, as shown below :

[1]. Industry development
The government will support the development of the industry through the Industrial Adjustment Fund (IAF) and Research & Development (R&D) grants. The IAF will be made available to all companies regardless of whether it is local, foreign or joint ventures that are able to make significant economic contribution. The IAF will be awarded based on a model-by-model basis, subject to [a]. A minimum threshold level of scale and [b]. Industry linkages, subject to sustainable levels of overall capacity. The R&D grants will be given based on the viability and economic contribution of the R&D projects. In addition, these grants and incentives will also be given based on pre-agreed conditions and timely achievement of the Key Performance Indicators (KPI). The level of support will also be correlated to the level of economic contribution and value added. In this context, a large scale manufacturing concern with exports and high industry linkages will be favoured compared with a pure assembly operation with little value added activities.

The government will continue to encourage industry players to collaborate with external parties to establish strategic tie-ups to [a]. Share scale and resources, [b]. Provide access to domestic industry participants to enter the global automobile supply chain, and to [c]. Compel the local players to adopt global best practices.

[2]. Industry rationalisation
Assemblers are required to rationalise the models assembled in Malaysia, expand production in a focused manner and deepen industry linkages in segments that are not competing with the high-volume car segment that the national marques are in. In addition, assemblers are prohibited from allowing third parties to make use of their existing excess capacities to assemble new makes or models that compete directly with the national car manufacturers. No new manufacturing licences would be issued until the over-capacity in the industry is resolved. When an increase in production capacity is required, usage of existing excess capacity is encouraged. New assembly will only be allowed on a strict case-by-case basis.

As for the 2 national marques, both companies are also required to rationalise their model and platform portfolios in order to achieve sufficient scale and industry linkages and to focus on each companies' area of competitiveness.

Rationalisation in the component sector is also required to achieve a smaller number of vendors, all of which will be operating at a scale, cost and quality level that will allow them to be competitive and be able to export. The aim is to create a leaner and sustainable structure throughout the value chain.

As for imported vehicles, the government will gazette the values of imported vehicles for the purpose of duty computation to address the incident of under-declaration of tax.

Vehicle Type Approval (VTA) processes and procedures will be implemented comprehensively to prevent the import and sale of sub-standard vehicles. The VTA processes will ensure strict compliance with roadworthiness, safety and emissions standards. The VTA will be implemented by the Road Transport Department and other relevant agencies.

[3]. Industry liberalisation
The excise duties have been streamlined in accordance with the requirement of the ASEAN Free Trade Agreement (AFTA). Import duties for the ASEAN Completely-knocked-down (CKD) four-wheelers have been reduced to 0% from a range of 0-25% in 2004 and 2005 whereas import duties for the ASEAN Completely-build-up (CBU) four-wheelers have been reduced to 5% from the previous range of 40-190% in 2004 and 2005. As for the Non-ASEAN CKD four-wheelers, import duties are down to 0-10% from 5-35% in 2004 and 2005, and for the CBU four-wheelers, they are down to 30% from the previous range of 60-200% in 2004 and 2005.

The Approved Permits (AP) system will be phased out by 31 Dec 2010. In the meantime, AP will be made available for a limited number of vehicles not assembled in Malaysia and priority will be given to vehicle assemblers that have committed to a significant increase in production volume with significant exports. Importation of second hand vehicles (other than individual personal imports) will be progressively phased out, culminating in a total ban in 2010.