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SECTION [C]: THE CHALLENGES/cont'd
The grey areas in the NAP
[1]. The criteria for awarding the IAF
Based on the NAP Framework announced in Nov 2005, the incentives to be provided by the IAF can be in several forms, such as interest free loans and matching grants, and cover areas such as automation, upgrading of machinery, component development costs and technology enhancement. However, the level of scale, linkage, and value add required to be eligible for the fund was not quantified. Even the KPIs needed to be met in order to be eligible for the grants and incentives were not announced. For the case of Proton, it is understood that the KPIs to be met are different from the headline KPIs announced by the government-linked corporations. Without transparency in the award criteria, it is likely that the grants and incentives will be awarded on subjective and even bias bases.
[2]. The basis for deriving the gazetted value of imported vehicles
There are a few key questions to this:
- What is the benchmark used to derive the gazetted value of imported vehicles?
- If a model can be sourced from different countries, which country will be used as the price for the gazetted value?
- If a model is exported to different countries at different prices, which price will be used?
- If a model is sold at different prices in the domestic and export markets, which price will be used?
[3]. Vehicle Type Approval (VTA)
Will the VTA test be standardised across all models? Based on the current models of the national marques, it is questionable that the models can pass the VTA test. If models of the national marques that do not pass the VTA test are allowed to be sold, will this not result in double standards in implementation?
The NAP: The right direction, but more needed
The NAP has presented a road map for the industry and what the government expects from the industry players. For the assemblers, they are enticed to make Malaysia their manufacturing hubs for the types of motor vehicles that are not competing with the national marques. In return, they will be awarded incentives and grants and the rights to import motor vehicles to complete the range of their offerings. For Malaysia to promote herself as a regional manufacturing hub and at the same time protect her national marques from competition is not easy. How many countries can one name that are manufacturing hubs for international automobile brands and at the same time have policies protecting their national marques? In fact, most of the countries that are regional automobile manufacturing hubs are countries that do not even have national marques. The solution coming out from the NAP is that Malaysia will be a manufacturing hub for niche markets and not competing with the high-volume segment that the national marques are in. With Proton heavily involved in the passenger car segment with engine capacity between 1,300cc to 1,600cc and Perodua being heavily involved in the passenger car segment of engine capacity below 1,300cc, the segments left are passenger cars with engine capacity of 1,800cc and above, multi-purpose vehicles (MPV), vans, and 4-wheel drive (4WD). For MPV and 4WD, Thailand and Indonesia are already significant manufacturing hubs. Unless Malaysia offers enough carrots to lure the foreign automobile manufacturers, Malaysia is left with the segment of passenger car with engine capacity of 1,800cc and above. However, this raises another problem, as Malaysia is behind Thailand in terms of manufacturing higher-end passenger cars. This brings us to the issue of having a competitive automobile industry.
On making the local automotive industry more competitive, nothing is said about the need to develop manpower quality and skills. Our counterpart, Thailand, seems to realise the importance of raising the quality of her human capital. Thailand has developed a US$217.5 mln plan to further cement its position as the "Detroit of Asia". Out of the US$217.5 mln, US$37.5 mln are allocated for human resource development. Have the Malaysian policymakers not realised that the main problem with our automotive industry's lack of competitiveness lies with the quality and mentality of her workforce?
As for our automobile parts and components manufacturers, though consolidation is badly needed, considering the current size of most of the parts and components manufacturers, it is just the first step of a thousand-mile journey to be successful. Globally, direct suppliers to automobile manufacturers are not only becoming large global firms, but are also becoming specialists in complex automobile systems or integrators of several subsystems. Based on research conducted in the International Motor Vehicle Program, automobile suppliers globally are now broadly categorised into raw material suppliers, component specialists (companies that design and manufacture a specific component for a given platform, such as stamping products, injection mouldings and engine components), global standardisers (companies that set the standards on a global basis for a component or system, such as tyres, ABS and electrical control units) and system integrators (suppliers that are capable of designing and integrating components and systems into modules, such as interiors, doors and chassis). As for our local automobile parts and components manufacturers, most of them are still at the lower end of the component specialist level, due to limited design and manufacturing capabilities. The trend globally is that the component specialists are moving towards the level of system integrator, such as Denso. If we were to use Denso as a benchmark to gauge our local automobile parts and components manufacturers, one will realise the huge challenges that lie ahead. Our local suppliers are complacently relying on the 2 national marques and only a handful have ventured outside Malaysia and become suppliers to international marques.
In turning our local automobile industry from a domestic demand oriented industry to an export-oriented industry, the NAP's compliance with AFTA allows Malaysia to enjoy similar import duty (0-5%) treatment for Malaysian exports to the ASEAN countries. By tying up rights to import motor vehicles to export levels as proposed by the NAP, it is actually similar to the strategy taken by South Korea in the 1980s to promote her exports. However, it is hard to repeat the success enjoyed by South Korea, due to increasing anti-dumping regulations. It is no secret that one of the main reasons behind the success of Hyundai's Pony was due to Hyundai exporting the Pony at prices (US$2,200) below its cost (US$3,700). The losses in exporting the Pony were recovered by a higher domestic selling price of US$5,000. The ability of Malaysia's automobile industry in becoming export-oriented will then be highly dependent on the ability of the national marques to come up with successful models and the ability of Malaysia to turn herself into a regional automobile manufacturing hub.
At the end of the day, NAP is just a policy
The NAP is an interesting policy, due to its attempt to delicately balance the need to protect the national marques and at the same time promote industry liberalisation. However, it is also the need to balance between these two needs that will hamper the ability of the NAP in transforming the Malaysian automobile landscape in a fiercely competitive and brutal industry. The hard truth is that with the direction already in place, the fate of Malaysia's automotive industry now lies in the hands of its players.
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Malaysia's Automotive Policies - Part 3 (cont'd)