KUCHING: The automotive sector may be liberalised sooner than the expected date of 2020 if reports that the government are embarking on this exercise appear to be true.
AmResearch Sdn Bhd (AmResearch) in its recent research report said the developments came amidst increasing interest by foreign carmakers to set up a manufacturing presence in the country. To recap, the current National Automotive Policy (NAP) stipulated that an open approved permit (AP) system would be terminated by December 2015 while the franchise AP system would be phased out by December 2020.
Nevertheless, the research house said that distributors of foreign marques such as UMW Toyota (UMW) and Tan Chong Motors (TCM) had little issue in obtaining the required number of APs.
Distribution of APs was usually limited to 10 per cent of total industry volume (TIV) and almost half of it was allocated to franchise APs with the remaining to open AP holders.
Another issue that was being mooted was the possibility of excise duties being lowered; which would remove protectionism for national makes like Proton Holdings Bhd (Proton) and create a more level playing field.
To date, Malaysia currently has one of the highest vehicle duty structures in Asean of between 75 per cent and 105 per cent depending on engine capacity, compared with Indonesia’s 30 per cent to 75 per cent and Thailand’s 17 per cent to 40 per cent.
However, AmResearch did not foresee the lowering of excise duties to materialise immediately; instead a more gradual move was expected, given that excise and import duties accounted for up to eight per cent of government revenue.
On another note, a sharply lower pricing of new cars as a result of the lower excise duties would cause second-hand vehicle values to collapse. This lowered consumers’ trade-in ability and increased the value needed to buy a new car.
Subsequently, this also meant a higher risk for hire purchase financiers as loan-to-collateral value would see a sharp increase. This, could in fact, negatively impact the loan disbursement rate and ultimately, consumers’ ability to purchase new cars.
The research firm believed the liberalisation move was to entice foreign carmakers to invest deeper into research and development in order to help the local automotive sector move up the value chain. Currently, foreign investments in the automotive segment are largely limited to contract assembly.
Additionally, it believed the move was meant to attract foreign original equipment manufacturers (OEMs), particularly mid- to high-end marques, to use Malaysia as a regional production hub.
Reducing the cost of vehicle production here could further elevate Malaysia’s value proposition as a regional manufacturing hub and complemented Malaysia’s competitive advantage in being the largest passenger car market with a decently high per capita income compared with the majority of Asean countries.
For that matter, Indonesia was set to overtake Malaysia as the largest passenger vehicle market in Asean within the next three years and this posed a threat in terms of attracting foreign investment.
Malaysia’s value proposition could be further elevated if it could transform into a cheaper regional production hub for foreign makes, to counter foreign direct investment (FDI) competition from neighbours.
In revisiting recent developments, Volkswagen (VW) recently formalised plans with DRB-Hicom Bhd (DRB-Hicom) to assemble its models locally and eventually, use Malaysia as its regional passenger car production hub.
DRB-Hicom would contract manufacture VW models using its plant in Pekan, Pahang which had a total capacity of 60,000 units per annum on a single eight-hour shift and five-days-a-week operation.
The deal involved an investment of RM1 billion over five years with the bulk of it to be spent in the first three years. With a targeted 50,000 units per annum capacity within the next decade, VW should emerge as an important principal for DRB-Hicom.
Other key marques currently produced at DRB-Hicom’s Pekan plant include Mercedes and Suzuki.
Three initial VW models that would be produced in Pekan were the Passat followed by the Polo and Jetta. Notably, VW’s decision to use Malaysia as a regional production hub came hot on the heels of Peugeot’s decision to do the same back in September 2010.
The research firm believed that VW and Peugeot’s aggressive expansion plans in Malaysia and the region should create the urgency for competing marques to follow suit.
Peugeot was targeting to increase its market share in the local market to eight per cent by 2012 from around one per cent; which was similar to VW’s current market share.
It anticipated VW to eye a similar-sized market share within the next two years.