Market awaits National Automotive Policy details

  • Business
  • Thursday, 20 Oct 2005

THE overall objective of the National Automotive Policy (NAP) has been well received by officials of auto companies but analysts feel more details are needed before they can completely ascertain the impact on the auto industry in Malaysia. 

Analysts feel the move to promote Malaysia as a manufacturing and assembly hub in the region poses very little downside risk and the benefits to the country and the industry would be big if global auto makers bite on the carrots that will be offered by the government. 

The objectives of the NAP are broad reaching and generally aimed at developing Malaysia as a complete automobile manufacturing, assembly and distribution centre, not just for the domestic but also export-oriented companies.  

The policy also intends to make the national automotive companies and component makers competitive and viable, along with ensuring broad-based bumiputra participation in the industry. 

The NAP will also see some incentives, taxes and duties on vehicles in the same capacity category and the preferential tax treatment that national auto companies such as Proton Holdings Bhd have been enjoying would be removed. 

Malaysian manufacturers would gain the benefit of the Industrial Adjustment Fund and other grants and funds to enhance their capabilities. 

One big beneficiary of the NAP would be bumiputra-controlled public-listed companies that own car franchises that would be exempted from the 70% bumiputra shareholding requirement for franchise approved permit (AP) holders and can now directly import such brands rather than go through intermediaries. 

Analysts felt that the broad outline of the NAP framework gave an indication of the direction the government was taking the auto industry to but said it was too early to digest the framework without details. 

“It would appear that the NAP is part of the government's objective of being compliant with requirements under World Trade Organisation (WTO),'' said an analyst. 

Although buyers of Proton cars in the future may pay the same rate of excise duties imposed on non-national cars in the same range, analysts felt Proton could offset or absorb that duty through rebates from the host of funds being established to reward Malaysian manufacturers engaged in research and development (R&D) and other value-added activity. 

“The excise duty discount for Proton right now is about the amount the company spends on R&D each year,'' said the analyst. Analysts felt that anything less than a matching grant on a one-for-one basis would be detrimental to Proton. 

The government's intention of creating a manufacturing and assembly hub in Malaysia would see the country pit itself against Thailand, which has a big and developing auto assembly centre in Rayong. 

Analysts feel that there is still interest from auto makers from countries such as South Korea and Japan to set up either manufacturing or assembly operations in the country and the measures contained in the NAP framework could be a carrot for such companies to set up shop in Malaysia. 

“It is possible for Malaysia to succeed in this area, especially from the perspective of manufacturing plants,'' said the analyst. 

“Malaysia is trying to move upstream and this could mean more jobs in the country.'' 

Analysts said such a move had no downside, and the worst-case scenario would be no taker on the government's offer. 

While the move to allow bumiputra-controlled listed companies that own franchise rights to import cars directly, analysts feel this may not result in the price of cars dropping. 

“The direct impact is that it may lead to higher car prices,'' said an analyst. 

Commenting on the new tax structure that basically sees a reduction in duties for passenger cars, analysts say whether prices drop would entirely depend on car distributors. 

“A lot of them have been suffering from thin margins. Competition is fierce and the buffer may allow them to keep car prices stable instead of raising them,'' said one motor analyst. 

The new duty structure, however, sees a net increase in duties for multi-purpose vehicles and 4-wheel drive vehicles. 

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