Govt unveils National Automotive Policy Framework


The automotive sector is a key industry in the Malaysian economy. Theeconomic contribution of this sector is immense, with significant linkages tothe manufacturing and services sectors. The automotive sector began withimportation of vehicles which then progressed to assembly operations and theestablishment of a wide network of automotive components and partsmanufacturers. 

The establishment of Proton in 1985 and consequently Perodua in 1993 actedas catalysts to the development of the automotive sector. The automotivecomponents and parts industry also grew in unison. This signaled a newphase for the Malaysian automotive sector whereby indigenous technologyand local capabilities were developed in line with the Industrial Master Plansof the Government. In this context, Malaysia is proud to be the only nondevelopedcountry in the world to have its own full automotive design andengineering capabilities. 

Given the significant challenges facing the automotive industry, in particularglobalisation, liberalisation and increasing competition, there is a need toreview the strategic direction and policy framework for the domesticautomotive sector. This is crucial to maintain the competitiveness ofparticipants in the automotive sector, in order for them to be viable in the longterm. 

In this respect, the Government will maintain existing measures which areconsidered necessary, and moving forward, institute new measures to replaceexisting measures which no longer serve national interest, in order tocontinuously support the development and viability of the automotive sector.The Government is dedicated to provide a conducive enviro nment for theautomotive sector to flourish and become world class. 


Currently the automotive sector is characterised by several industryparticipants across the entire value chain. There are 4 passenger andcommercial vehicle manufacturers including Proton and Perodua. There isone motorcyc le manufacturer which is Motosikal dan Enjin Nasional Sdn Bhd(MODENAS). 

In addition, there are 9 motor vehicle assemblers and 9 motorcycleassemblers. To support the manufacturers and assemblers, there are 343motor vehicle components and parts manufacturers, of which 23 are Tier 1status. In turn, there are 100 motorcycle components and partsmanufacturers. 

In terms of vehicle importers, there are 76 Open Approved Permit (AP)holders and 37 Franchise AP holders. On the sales and distribution side,there are a total of 1,978 dealers for motor vehicles and 158 dealers formotorcycles. 

Given its track record of economic growth and stability, the automotive sectorin Malaysia has significant potential for future growth. In 2004, Malaysia wasthe largest producer of passenger cars in ASEAN, accounting for 24.4 percentof total ASEAN production. For commercial vehicles, in 2004, Malaysia wasthe third largest producer in ASEAN, accounting for 11.0 percent of totalASEAN production. 

Underpinning this high production capacity is the substantial investments thathave been made in the automotive sector. To date, up to RM 11.2 billion havebeen invested by the manufacturers and assemblers whilst automotivecomponents and parts manufacturers have invested over RM 8.2 billion. 

The total sales in the automotive market have also been strong and on theuptrend since the last few years. In 2004, there were 530,025 units of motorvehicles sold with passenger cars accounting for more than 420,000 of thattotal. The total exports for the automotive sector has been increasing wherebythe export figures in 2004 showed a total of more than RM 2.5 billion. 

Malaysia is dedicated to fulfill its multilateral commitments under WTO andAFTA and has taken steps to liberalise its duty structure. Other measureshave been taken as well. Since 2001, the equity policy for the automotivesector has been relaxed to allow up to 51% foreign equity on a case by casebasis. In addition, domestic manufacturers and assemblers are currently freeto multi-source from the most competitive suppliers globally, uninhibited fromlocal content policy requirements. 


To spur its further growth, the Malaysian automotive sector will be driven bysix major objectives, as follows: 

1. To promote a competitive and viable automotive sector, in 

particular national car manufacturers2. To become a regional hub for manufacturing, assembly anddistribution for automotive vehicles 

3. To enhance value added and local capabilities in the automotivesector 

4. To promote export-oriented Malaysian manufacturers as well ascomponent and parts vendors 

5. To promote competitive and broad-based Bumiputeraparticipation in vehicle manufacturing, distribution andimportation as well as in component and parts manufacturing 


1. To promote a competitive and viable automotive sector, inparticular national car manufacturers 

The Government will provide support and incentives to enhance thecompetitiveness of automotive manufacturers in the country, in particularnational car manufacturers Proton and Perodua, as well as provide thenecessary support for existing assemblers to continue to be viable inMalaysia. 

The Government will ensure that sound policies are in place to enhance thelong term competitiveness of the automotive components and partsmanufacturers, given their contribution towards the competitiveness of vehiclemanufacturers and assemblers. 

Imports of vehicles will continue to be allowed, but pertinent changes toexisting policies and procedures will be made. Preferably, importers would,over time, traverse the value chain and become assemblers or evenmanufacturers. 

The Government will promote competitive manufacturers and assemblers, interms of range, quality and prices, in order to encourage the provision ofaffordable vehicles for the general public, including for the lower incomegroups. 

2. To become a regional hub for manufacturing, assembly anddistribution for automotive vehiclesThe Government will continue to provide incentives and infrastructure as wellas implement favourable policies to attract manufacturers or assemblers toremain or to set up in Malaysia. Priority will be given to manufacturers andassemblers which plan to use Malaysia as a launch pad to tap the regionaland international markets. 

The Government will also continue to promote policies and incentives toattract components and parts manufacturers to invest in Malaysia. This isparticularly pertinent in light of the global outsourcing trends currently takingshape in the international automotive industry. 

3. To enhance value added and local capabilities in the automotivesector 

The Government will continue to implement the necessary policies toencourage the development of value added throughout the automotive supplychain as well as to further enhance local capabilities . Such development ofvalue added and local capabilities can be through the enhancement ofprocesses, technology or human c apital. 

4. To promote export-oriented Malaysian manufacturers as well ascomponent and parts vendorsThe Government will continue to provide direction and assistance for industryparticipants to establish or expand their penetration in the export markets,particularly through export promotion incentives. The Government will alsoextend support to equip manufacturers with the necessary prerequisites forsuccess in the export markets, which include quality certification, testingstandards and others. 

Emphasis will be given to Malaysian owned manufacturers as well ascomponents and parts vendors, in order to develop local and indigenouscapabilities. 

5. To promote competitive and broad-based Bumiputeraparticipation in vehicle manufacturing, distribution andimportation as well as in component and parts manufacturing 

The Government will provide support and incentives to enhance theparticipation and competitiveness of Bumiputera companies in the automotivesector. This includes Bumiputera equity shareholding levels, ensuringprogressive Bumiputera human resource development and fosteringBumiputera entrepreneurship in the relevant areas. 


In order to support the objectives of the automotive sector, the followingmeasures are to be implemented: 

1. Establishment of Industrial Adjustment Fund 

An Industrial Adjustment Fund will be established to assist Malaysianmanufacturers to face the challenges brought about by increased competitionand liberalisation. These incentives can be in several forms such as interestfree loans and matching grants, and cover areas such as automation,upgrading of machinery, component development costs, as well as technologyenhancement. In disbursing this fund, preference will be given to theautomotive sector, namely manufacturers, assemblers as well as componentsand parts manufacturers. 

2. Provision of Incentives to Components and Parts Manufacturers 

a) Cooperation ProjectsCooperation projects with bilateral free trade agreements (FTAs) partners willbe used to enhance the competitiveness of the Malaysian automotiveindustry, particularly the components and parts manufacturers. Areas ofpotential cooperation are in the areas of upgrading quality, increasing marketaccess, enhancing skills and establishing testing centres in Malaysia. 

b) Support for the Global Supply ProgramThe Global Supply Program will be implemented to enable domesticcomponents and parts manufacturers to expand into the global supply chainof the major automotive companies . This program will be implementedthrough participation in the ASEAN priority sectors as well as through FTAsand negotiations. 

3. Provision of Training GrantsTraining grants will be considered for automotive manufacturers, assemblersand components and parts manufacturers, which undertake training foremployees to upgrade their level of skills and competency. The training canbe in the form of in-house training, or training conducted by approved localand overseas training institutes. This incentive will be in addition to thetraining grants implemented through the Human Resource Development Fund(HRDF). 

4. Provision of Research & Development (R&D) Grants 

R&D grants are proposed for automotive manufacturers, and components andparts manufacturers which undertake research and development activities,including designing, prototyping, product development and improvement. 

5. Designating Production Centres for the Automotive SectorThe following areas will be designated as automotive manufacturing orproduction centres, as follows: 

  • Gurun (Kedah);
  • Bertam, Seberang Prai (Pulau Pinang);
  • Pekan (Pahang);
  • Tanjung Malim (Perak);
  • Shah Alam and Rawang (Selangor). 

    Companies will be encouraged to locate in these centres through inc entivesand other assistance schemes. The concentration of automotive relatedparticipants in such designated centres will encourage the sharing ofinfrastructure development costs and other common facilities, as well asenable efficient just-in-time manufacturing. As such, the Government will notencourage the establishment of other production centres for the automotivesector. 

    6. Ensuring Standards Conformity and Technical Compliance 

    Jabatan Pengangkutan Jalan (JPJ) (Road Transport Department) willundertake Vehicle Type Approval (VTA), which involves compliance withinternational safety standards. In addition, Jabatan Alam Sekitar (Departmentof Environment) will enforce the emission and fuel consumption standards. 

    Such enforcement of the mandatory standards of manufactured goods willprevent imports of sub-standard products. 

    7. Extension of Technology Acquisition FundThe Technology Acquisition Fund (TAF) will be extended to the automotivesector. Currently, Malaysian-owned companies, which acquire new andemerging technologies to enhance their technological capabilities can applyfor partial grants from TAF. 

    8. Provision of Market Development GrantsMarket Development Grants will be provided to assist Small and Medium 

    Enterprises (SMEs) to undertake relevant activities for the development ofexport markets. In this regard, companies can obtain a 50 percent matchinggrant on the approved costs o f the eligible activities. 

    9. Provision of Customised IncentivesCustomised incentives will be made available to automotive relatedcompanies, after due consideration and evaluation. These incentives aretailor-made to meet the specific needs of an investor. Currently, customisedincentives , including tax and non-tax incentives , are only granted to qualifiedprojects in the manufacturing sector. These incentives include corporate taxexemptions, training and R&D grants, as well as soft loans. 

    Provision of customised incentives will be evaluated based on the followingcriteria: 

  • high value-added;
  • degree of technology transfer;
  • improvement in level of expertise;
  • level of foreign exchange earnings;
  • strengthening of manufacturing value chain;
  • developing linkages within the industry; and
  • undertaking of R&D. 

    10. Amendments to Approved Permit (AP)An extensive review on issues relating to APs was conducted. APs, which areprimarily used for monitoring and data collection purposes, will be phased outin the longer term. In the interim, the following measures will be implemented: 

    a) To freeze issuance of franchise APs for importation of new vehiclebrands 

  • A change in the effective shareholding or ownership of the franchiseAP holder for existing vehicle brands can be considered forapproval. 

    b) To discontinue franchise APs awarded for importation of ‘tunedup’vehicles, with effect from 1 January 2006 

  • The existing franchise AP holders of ‘tuned-up’ vehicles will nolonger be allowed to continue in this line of business from 1 January2006; 

  • Open AP holders may import ‘tuned-up’ vehicles using their quotaof Open APs, and even in such cases, imported ‘tuned-up’ carswould need to undergo comprehensive JPJ inspections to ensurethe extent and compliance with the tune-up specifications. 

    c) To allow Bumiputera-controlled Public Limited Companies (PLCs)to apply directly for APs 

  • Bumiputera-controlled PLCs will be exempted from the 70 percentBumiputera shareholding requirement for franchise APs ; 

  • The previous condition had created a situation where broad basedBumiputera controlled entities had to use intermediary ofBumiputera individuals to import vehicles.  

    With this exemption, theGovernment expects companies such as DRB-Hicom Bhd andSime Darby Bhd, who are currently exclusive franchise holders ofcertain vehicle brands , to import the vehicles directly rather than gothrough the intermediaries . 

    d) To limit the importation of used vehicles through Open APs to that between the ages of 1 to 5 years only. 

  • Used vehicles of less than one year cannot be imported. Such importation in the past had led to abuses. 


    The National Automotive Policy Framework sets out the broad objectives andmeasures for the automotive sector, where it is intended to provide guidanceand direction to all industry participants on the future development path of theautomotive sector. Moving forward, this National Automotive PolicyFramework will be complemented by a comprehensive National AutomotivePolicy that will be unveiled upon completion of a full-scale review currentlybeing undertaken. 

    This full-scale review is important as the Government recognises the need forfurther recalibration of the objectives and measures set out in this NationalAutomotive Policy Framework, given the varying objectives and needs of theindustry participants in this sector. It is intended that the National AutomotivePolicy will be an optimal yet flexible solution that will align all the variousobjectives and measures , for the benefit of the automotive sector in particularand the Malaysian economy in general. 

    Prime Minister’s Department19 October 2005

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