Auto sector faces numerous challenges

  • Business
  • Saturday, 19 Mar 2011

THE Malaysia Automotive Institute (MAI) is an agency under the International Trade and Industry Ministry (Miti) that was established as the focal point and coordination centre for the development of the local automotive industry.

Since it began operations last June, it has been working quietly behind the scenes. It has since been engaged in several pacts to broaden the auto business in Malaysia and there's more to come.

In an interview with the StarBizWeek, MAI chairman Datuk Kamaruddin Ismail (KI) and CEO Madani Sahari (MS) speak on what the body has been up to and its plans for the country's auto sector.

SBW: The domestic auto industry is about 25 years old. Why start with reform efforts only now?

KI: The policies have been there but there has been no conscious step being taken to draft the way forward given the developments around us. The auto industry is more challenging now than before. If Malaysia is not careful, we can be marginalised.

What do you think needs to be done for the auto sector to flourish?

KI: We have the largest passenger car segment in the region. We were the first to be involved in the auto industry in Asean and created Proton and Perodua. By right, we should have moved ahead of the rest. Unfortunately, when the Asean Free Trade Area took off, we did not move in that direction as some form of protection was still in place. If we do not move in the right direction, sooner or later countries that have never been in the auto sector before will fill up this vacuum. Thailand has taken advantage of our “protection” to develop their auto industry.

How important is the auto industry to Malaysia?

MS: Very direct and indirectly. The industry employs 220,000 people; 50,000-60,000 are directly employed while the rubber, plastic and electronic component makers that are part of the auto industry are categorised separately.

Investment-wise, the OEMs have invested RM15bil in the sector and that does not include what the vendors have invested, which is also large.

Most of the training and the industry direction is left to the private sector. Does the MAI plan to add or supplant such activities currently undertaken by private companies?

MS: We engage with the industry the vendor association, OEMs and the motorcycle association and their needs and wants once a month.

Increasing productivity is one way forward and to reduce cost. Robotics, automation and multi-skills are required by the industry and although we don't get involved directly, the industry wants us to supply them with people who are multi-skilled and knowledgeable in robotics and automation capability.

We can also replace our foreign workers, so we strategically develop programmes to produce workers for the industry to automate the industry further. We collaborate with established training institutes for this. This is our Industrial Professional Certificate programme which is to produce specialised operators and technicians. These workers will be able to handle more complex operations and are higher income earners because they are able to replace three to four operators.

When we do training for the industry, it's not for free but as a non-profit organisation, we don't charge like a for profit organisation does.

Companies have their own training schemes. How different then is that from yours?

MS: What Perodua and DRB-Hicom are doing are to meet their own needs, although they do include vendors from time to time. What about the other 400-500 suppliers and SMEs? The other Tier-1 companies don't have that and 95% of companies don't have such centres. We provide a platform for those companies. We are in talks with Proton and Perodua to develop human capital training programmes for them and also their suppliers. They have agreed to use their facilities for their vendors. We are also using the existing institutions to transform and supply what the automotive industry actually needs.

What is the employment growth rate in the auto industry?

MS: We require 4,600 designers, 5700 automotive engineers, 27,000 specialised technicians and skilled workers to replace foreign workers. We require 1,500 Lean Production System experts. In addition, we need 500 specialised maintenance engineers. These are the numbers we are working with until 2015.

What's your stand on the NAP?

MS: As a general policy, it is one way forward for the industry. For example, we are going into EV (electric vehicles), hybrids, high value-added activities in the auto industry. In the NAP, there is also talk of the end of life vehicle but that was retracted.

The NAP has provided the direction as to where the industry should be heading and the policy has looked at the safety issues and creating additional volume not for the sake of the industry but for the sake of safety.

MAI will follow through with the NAP through other specific directions, the technology roadmap in power trains, materials used, electric and electronics.

We will complement the NAP and come up with the automotive industry roadmap that will touch on new markets, products that Malaysia should specialise in and so forth.

KI: The NAP is at the macro level. A lot needs to be done to implement the NAP. One example is testing of vehicles, vehicle end life, stop importation of used components and part. What is the next step to ensure the local industry survives? They should be looking at export markets, which is not mentioned in the NAP. It is for MAI to look at these details for implementation.

What is the automotive industry roadmap?

MS: It is about the industry direction of the industry. Is it going to be just hybrid and EV? What about hydrogen gas?

Malaysia can be an expert on engines. We are not talking about Proton going for EV and Perodua for fuel cell. Malaysia can be an expert in compressed natural gas direct injection. There are many countries that use natural gas but there is no one system in the world that uses direct injection. Malaysia has that technology.

We cannot be talking about the OEMs. What about the component suppliers? We can be known as a systems supplier to the world. This direction needs to be charted.

It has been forecast that by 2020, 10% of all cars will be EV and 90% will be the internal combustion engine.

After that if it's going to be fuel cell or hydrogen, we need to prepare for that. It takes 5 years to prepare engineers meant for the industry.

What will a more liberalised landscape in the country's auto sector look like?

MS: We want to be the best in Asean and outweigh Thailand and Indonesia. Thailand is good because of foreign input and likewise with Indonesia. W

The market in Asean is between 1.5mil-2 mil vehicles annually and in 10 years the market will grow to 5 million.

The production capacity now in Asean is between 2mil-3mil. This capacity will need to grow.

What will be our value proposition to foreign car companies that are thinking of expanding capacity or setting up shop in Malaysia?

MS: If they come here, we will assure them of good quality from our vendors, we give them the best cost.

There are many factors to consider when investing in a country. Most of them will have their own technologies but to manufacture them, they will require the manufacturing technologies of the country and that involves cost. We can offer better quality and provide human capital to manufacture for the OEMs and vendors.

It's about providing them the best quality across the ecosystem at best cost. We can also recommend to the OEM on the cost of design, which is 40% of a car value.

This cost is expensive when done in Germany, US or Japan. We can offer the OEMs to conduct their design here as we have capable designers and they can reduce cost easily by 60%.

Related Stories: The road to liberalisation Liberalisation in the used car market? European carmakers zoom in The attraction of hybrids

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