Overview of Malaysian Automotive Sector

Automotive industry in Malaysia began in 1960s. It is marked as one of the most important industries under manufacturing sector to spur the country's economy. Before the introduction of automotive industry in 1960s, most of the cars in Malaysia were complete build-up unit (CBU) imported from other countries.

Shortly after the formation of Malaysia in 1963, government took the initiative to encourage more players to develop automotive industry. Then in May 1964, government formulated a set of policies to reinforce assembly for automobiles and manufacture the components locally instead of relying on imported parts.

When the assembly plants were officiated in late 1960s, besides boosting country's economy, the policy has also helped to reduce unemployment rate in the country. Since the implementation of first policy in the country, government have drafted more policies to expand the local automotive industry and invited more players to join the industry in an effort to mold the components locally.

According to the new policies, vehicles must contain a certain percentage of locally manufactured components while taxes would be charged and tariff would be imposed on CBU imports. In addition to that, distributors and dealers must apply for import licenses and to renew it every half a year with the government.

Six assembly plants were approved by the government in 1967. Among some of the manufacturers in the country around that time were Swedish Motor Assemblies Sdn Bhd, Asia Automobile Industries Sdn Bhd and Tan Chong Motors. These plants were originally joint venture partnerships between local and European automobile manufacturers.

While the government's main objective was to encourage and expand home-grown components manufacturing, the plan failed because even right until 1980s, about 15 assembly plants made vehicles for Japanese and European manufacturers.

Then in 1984 under the leadership of the fourth Prime Minister Mahathir bin Mohamad, government made a crucial decision to launch a second phase of development projects for automotive industry. The National Car Project, Perusahaan Automobil Nasional (Proton) was officially launched in 1984.

Proton was a joint venture partnership with Mitsubishi Motors Corporation from Japan. The timely effort had proven successful with the launching of first national car, Proton Saga in 1985. To further expand and develop automotive industry in Malaysia, Perusahaan Otomobil Kedua Sdn Bhd (Perodua) was set up in 1992.

This time around, Perodua collaborated with several other manufacturers such as Mitsui & Co. Ltd of Japan, Med-Bumikar Mara Sdn Bhd, UMW Corporation Sdn Bhd, Daihatsu Motor Co. Ltd of Japan and PNB Equity Resources Corporation Sdn Bhd.

Peordua marked its name globally as the first Malaysian car manufacturer to receive ISO 9002 and ISO 9001 certification from United Kingdom's Vehicle Certification Agency (VCA). During that period, the local automotive industry produced mostly Proton and Perodua cars. Approximately 90 percent of he vehicles produced by both companies were sold each year.

Over the years, Proton has produced wide range of innovative and sophisticated car models such as Wira, Waja, Perdana, Arena, Gen-2 and Exora. Some of the cars are even equipped with a new engine, Campro developed by Proton and its collaborator, Lotus International (United Kingdom).

Challenges to local automotive industry

The two major national car manufacturers were all geared up in 2005 to fit into the new framework proposed for ASEAN Free Trade Area (AFTA). However, it was reported that Proton's sales drop drastically when AFTA was executed. When the new framework for AFTA was announced, Proton collaborated with Lotus engineering and Petronas-Sauber Formula 1 team to have own engine, Campro. The measure is important as it reflects Proton's new identity. Instead of resembling Mitsubishi cars, Proton can establish own identity.

While Proton has successfully came up with new models and new engine, Perodua is still far behind as the cars manufactured are still based on Daihatsu prototype cars. To remain firm in the market, Perodua must work harder in terms of R & D research to establish own identity. This is crucial if Perodua wants to enter the ASEAN market.

Aside from establishing own identity, one of the major challenges to local automotive industry is the ability to control the costs. To begin with, local cars are sometimes more expensive than foreign cars before tax and tariffs are imposed. To remain competitive in the market, former Minister of International Trade and Industry Datuk Seri Rafidah Aziz once proposed Proton to reduce local production costs.

Even though the cost of local production is significantly higher than imported cars, the quality is not up to par compared to foreign cars. Therefore, it is difficult for Proton or Perodua to penetrate ASEAN market and compete globally with other giant car manufacturers. The only measure to ensure good quality of car is to have strict quality control.

To enter and compete in ASEAN countries, local manufacturers must plan to have a joint venture partnership with other dealers or distributors. Say for example, if Proton intends to penetrate and sell the cars in Vietnam, then strategic collaboration with local dealers or distributors is needed to ensure the operation runs successfully in foreign countries.