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Malaysia relaxes auto sector curbs to woo foreign carmakers

By Agencies - Jan 20,2014 - Last updated at Jan 20,2014

KUALA LUMPUR — Malaysia announced Monday it would allow foreign automakers to build smaller passenger cars in the country, a liberalising move aimed at repositioning the country as a leader in energy-efficient vehicles.

The changes, effective immediately, will for the first time allow foreign automakers to build cars with engines of 1.8 litres or less if those cars qualify as energy efficient.

Such projects will not need domestic investment partners and will enjoy incentives such as tax breaks, Trade Minister Mustapa Mohamed told reporters.

“The policies used to be there to protect (national car brand) Proton. But we have opened up the market,” he said. “We believe these policies will enable Malaysia to regain our position as one of the most dynamic hubs for Southeast Asia.”

Malaysia, the region’s third largest economy after Thailand and Indonesia, was once Southeast Asia’s automotive hub.

But it has fallen behind its two rivals through decades of industry policies that coddled Proton, which was launched in 1983.

Malaysia now produces far fewer vehicles than Thailand or Indonesia.

The government had previously shielded Proton via excise and import duties of up to 150 per cent on foreign vehicles, and other restrictions.

The policies have been blamed for contributing to sub-standard Proton models. The firm, which was state-owned until 2012, has recorded losses in recent years as its market share sank.

Consumers have also complained the policies made better built foreign cars too expensive for many Malaysian buyers.

Malaysia already allows foreign carmakers to manufacture larger vehicles in the country, after lifting foreign equity caps on such ventures in 2010.

The reforms could be attractive to some foreign manufacturers looking for a regional production base but should not worry Malaysia’s neighbours much, said Affin Investment’s auto sector analyst Chong Lee Len.

“It’s a positive step for the market, but not quite a ‘Big Bang’,” she remarked.

In 2012, Thailand and Indonesia produced 2.4 million and 1.1 million cars under foreign nameplates, respectively, up 67 per cent and 27 per cent from the year earlier, according to the International Organisation of Motor Vehicle Manufacturers.

Neither country has a national car project.

Malaysian factories produced 570,000 cars in 2012, up nearly 7 per cent.

About three quarters of Malaysian production were vehicles with 1.8-litre engines or smaller.

Madani Sahari, head of the trade ministry think tank Malaysia Automotive Institute, said in a briefing last week that Malaysia would focus on being an export hub due to slowing domestic sales.

Chong, however, said most manufacturers “want to build where they can sell”.

Indonesia, with its fast-growing economy of 240 million people and low vehicle ownership rates compared to more affluent Malaysia, is considered by analysts to have greater upside for automakers.

According to Mustapa, the changes would reduce car prices in Malaysia by up to 20-30 per cent over the next four years.

Separately, the head of Toyota’s Thai unit, told a news conference on Monday that Toyota Motor Corp. may reconsider investing up to 20 billion baht ($609 million) in Thailand, and could even cut production, if political unrest drags on.

Toyota is the largest car manufacturer in Thailand, producing 800,000 vehicles a year. Plans to increase its annual capacity by 200,000 vehicles a year over the next three to four years are now uncertain, he said.

“Our new investment in Thailand may not happen if the current political crisis goes on longer,” he added. “For new foreign investors, the political situation may force them to look for opportunity elsewhere. For those that have already invested, like Toyota, we will not go away. But whether we will invest [further] or not, we are unsure.”

Thailand is the biggest auto market in Southeast Asia and a regional vehicle production and export base for the world’s top car manufacturers like Honda Motor Co. and Ford Motor Co.

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