This is "my" 200th post. I won't write anything on my own, instead, I'd like to share with all readers one of the most well written neutral article published in The Star Today. There's NOT 1, BUT 3 of them. Here's the 1st one/3...
SOURCE: The Star, The StarBizWeek, Saturday October 31, 2009National Automotive Policy – still stuck in neutral
By JAGDEV SINGH SIDHU
"The National Automotive Policy has been revamped to now include several new measures. But are they enough to move Malaysia’s auto industy ahead of its regional rivals?""WHEN International Trade and Industry Minister Datuk Mustapa Mohamed admitted at a press conference on Wednesday that Malaysia was behind Thailand in the auto industry, there were no gasps of disbelief nor expressions of shock.
However, there must have been a reflection of regret that Malaysia has lost much ground after it had stormed into the lead in the regional auto business when it launched the national car project in the mid-1980s.
Now, we have been overtaken by a neighbouring country that has basically given its investors the very things that have been asked of the Malaysian government all this time.
The “loss” to Malaysia may amount to billions of dollars and employment opportunities many times the size in Malaysia that have migrated northwards. This time around, though, the Government intends to rectify the situation.
Although the broad objectives of the national auto policy (NAP) review do not deviate much from the original policy announced in 2006, the Government has spelt out its intention of growing the industry and developing its long-term competitiveness with a slight twist.
“Given the strengths and weaknesses of the Malaysian automotive industry, the Government’s move to focus on high value added segments makes sense,” says Kavan Mukhtyar, partner and head of automotive and transportation practice, Asia Pacific, Frost & Sullivan.
“By focusing on the luxury vehicle, electric vehicle/hybrid/precision engineering segments, the Government hopes to attract high value added new investments without competing directly with Thailand, and at the same time continuing support for the national car makers that focus mainly on the compact and sub-compact vehicle segments.
“The NAP review has also clearly signalled that Malaysia will go through the process of gradual rather than rapid liberalisation. The clear timelines attached with the liberalisation process give enough time for the domestic players across the value chain to become regionally competitive or to diversify into other businesses.”
One of the main differences between the 2009 auto policy and its predecessor is the granting of full-fledged manufacturing licences to foreign auto companies, in categories that do not compete with the national passenger car players.
“Considering the competition from Thailand, which has firmly established itself as the ‘Detroit of Asia’, the lifting of the freeze on manufacturing licences is a good move that puts Malaysia on the right path to attracting foreign direct investments by global carmakers wishing to expand their operations in the region,’’ said CIMB Research in a note.
Turning to Europe
The carte blanche given for new manufacturing operations of certain type of cars, such as those above the 1,800cc and RM150,000 in value, is a start, but the issue is, will manufacturers bite?
There is a school of thought that foreign car companies from Europe may pay a little more attention to the measured liberalised environment in Malaysia.
OSK Research, in its note on the NAP, points out that Thailand trumps Malaysia on incentives as it offers lower excise duties on vehicle prices and the exemption of import duty on plant machinery, in addition to having an already established supply chain.
The only problem is that to qualify, investors need to fork out a huge sum of money, the minimum being RM1bil.
“To date, Thailand has seven global OEMs (original equipment manufacturers) and a few smaller ones that have set up plants with capacity totaling 1.625 million units as of 2008. These are mainly OEMs from Japan (Toyota, Mitsubishi, Isuzu, Honda, Nissan) and US (Ford and General Motors).
“As none represents the European region, we may potentially see Malaysia trying to attract global OEMs from this region instead. This was hinted in the announcement, with respect to relaxation of the ruling on foreign manufacturers in the luxury passenger car segment,’’ said the research house.
Having competitive incentives is one thing, but the years of distrust and doubt that foreign players have built up against the direction of Malaysian auto policy, is working against the possibility of them committing huge sums of money in the future.
“Fiscal incentives and flexibility in ownership are just a few factors to attract FDI (foreign direct investment). Foreign investors will evaluate the entire ecosystem in Malaysia, including the availability of supporting supplier industries, access to regional markets, domestic demand, availability of human resources,’’ says Kavan of Frost & Sullivan.
“For example, to become a manufacturing hub for hybrids/electric vehicles, Malaysia also needs to have an attractive home demand for such products. Follow-on measures will be critical in creating an attractive ecosystem for foreign investors in the high value added segments.’’
He feels Malaysia’s biggest challenge is to strengthen the supplier base and help those suppliers develop competitiveness.
“In summary, the NAP review will definitely attract attention from the foreign investors but actual flow of investment will depend on how the entire automotive ecosystem responds to this opportunity,’’ Kavan says.
Note: Please double click to enlarge...
Time to change
The main thing the NAP has failed to do is to cut tariffs and consequently, the price of vehicles in the country. Maybe this is due to the already huge strain on the government budget, which has been running deficits for more than a decade now.
“Most of the consumer-centric measures are more towards improving safety standards and the environment friendliness of the vehicles. In the short term, imports of used CBU (completely built up) imports may be constrained as gazetted prices will be used for duty computation,’’ says Kavan.
“Consumers in the luxury segment may benefit in the medium term if foreign automakers make Malaysia their hub for vehicle manufacturing.”
The NAP also manages to liberalise the auto sector while still giving protection against the national car makers, a stance the Government has not wavered from, since starting the national car policy in the mid-1980s.
Whether that is an acceptable to the rest of the industry is moot, but there are quite a number of people who feel that is not the right way to go.
“(There is) still ample protection for national producers, including maintaining high excise and import duty structures, extension of freeze on assembly of rebuilt commercial vehicles such as trucks and buses. And, the liberalisation of manufacturing licences does not encroach into the mass market segment, which the national producers currently serve,’’ UOBKayHian points out in its note.
And there are people in the industry who feel the time has come for that to change.
“We have to look at the national auto industry in particular and not only focus on the national car company alone,’’ says DRB-HICOM Bhd group managing director Datuk Mohd Khamil Jamil.
“Having the technology and product for the domestic market alone is insufficient. We must also be accepted by the market overseas, at least regionally.’’
Khamil feels that a collaboration with a strategic partner is important in promoting and enhancing the capabilities and opportunities of Proton and the industry.
Malaysia is a country that has a long history of making cars. Notwithstanding the national makes, the employees of the industry are widely regarded as trainable and skilled. Just ask Mercedes Benz.
Its plant in Pekan, Pahang, started out making four units a day of just one model. Today, it assembles the S-class, E-class and C-class Mercs, and annual volumes has now reached 5,000 units. That makes it the largest CKD (completely knocked down) assembly outside Germany.
Picture above: NEW PROPOSED MOTOR VEHICLE TAX AND DUTIES STRUCTURE vs OLD...
“Consolidation and strategic alliances within the industry is important as many major manufacturers are moving towards multiple brands sharing the same engineering platform,” says Khamil.
“Asean is a high-growth region for the automotive business. There are threats of new markets like Vietnam and the Philippines. So we have to entrench our position.”
Changed, but still the sameThe crux of the issue in Malaysia has been overcapacity, competitiveness and the lack of exports. Khamil feels that future growth will have to be export-led, and Malaysia needs to establish its position as an auto manufacturing hub.
“There must be a balance between the national car brand and enabling a sustainable auto industry,’’ he says.
While the auto parts manufacturers would welcome the NAP, the other winners from the entire review would surely have to be the national car makes,” he adds.
The greater tax exemption for exports of vehicles will benefit Proton and Perodua, but analysts feel those companies would need to produce cars that are competitive on a global scale in order to greatly gain from such incentives.
That will entail additional costs to engineer such cars, making it essential for Proton to form a strategic partnership with a larger foreign player. Proton and Volkswagen are engaged in talks to reach such an arrangement.
While the NAP review is a step in the right direction, many things need to be in place for the measures to materialise into something significantly tangible.
“On a whole, the measures are unlikely to have much immediate impact on the auto sector. Most of the measures announced – albeit being positive in navigating the industry towards greater liberalisation and competition – are not significant enough to alter the prevailing industry dynamics. In a way, the scenario, duties and ultimately, car prices, have not changed,’’ said Affin Investment Bank in a research report."
END OF SOURCE.
References:
1) http://biz.thestar.com.my/news/story.asp?file=/2009/10/31/business/5013872&sec=business
That's all folks, thanks for having the time and patience to read this LONG Article...
