NAP 2012: The question is how far will full market liberalisation take place

DO we have an auto industry? A real one that earns good chunks of foreign exchange?

If we compare Thailand and Malaysia, the answer is clear. Thailand makes about a million vehicles a year and exports about half of them. Malaysia makes about 550,000 a year and exports about four per cent.

Without going into sophisticated supply chain assumptions of vendors and ownership of intellectual property, Thailand’s auto industry adds 25 times more value to gross domestic product than Malaysia’s.

This is a situation that evolved over 20 years, taking the birth of the Proton Saga in the late 1980s as the starting point. The automotive industry in Malaysia is now moribund.

Together with Perodua, the two national car companies apparently account for about 70 per cent of market share while about eight major world brands compete for the remaining 30 per cent slice of the 600,000 units a year sold in the Malaysian market.

All this is about to change. The starting shot has been fired by the completion of Proton’s sale to DRB-Hicom.
This is the liberalisation of the Malaysian car market that the industry has been waiting for. Dare the industry hope for the dismantling of the non-tariff barriers to foreign investments?

There is some good news and there is also much work to be done.

The good news is that NAP 3 (the third version of the National Automotive Policy that’s going to be announced by MITI - the Ministry of International Trade and Industry - by June or July) is a far more inclusive policy revision than NAP 1 and NAP 2.
NAP 3 is the creation of the Malaysian Automotive Institute (MAI) which is managed as a non-profit organisation operating under MITI.

MAI has assiduously cultivated the confidence of most of the industry players and over several rounds of private meetings, company by company, it has noted what needs to be fixed so that Malaysia’s auto policy benefits the country rather than deflecting discouraged investors to Thailand and Indonesia.

MAI’s preliminary views of NAP 3 so far are encouraging in that they reflect the realities on the ground rather than the idealism of NAP 2.

For instance, according to MAI’s chief, M. Madani Sahari, conditions on equity stake will be removed on condition that the investments are geared to bring in fuel efficient and low carbon-emission technology, inclusive of clean diesels and clean petrol engines that meet specific kilometre per litre and grams per kilometre of carbon dioxide. Previously, the NAP sought to define the technology rather than the outcome.

Secondly, manufacturing licences will be issued if the investment is for fuel efficient and low carbon emission engines, replacing the self-defeating policy that approval would only be given for cars above RM150,000 and 2,000cc in engine capacity.

The difficult thing to do is how to introduce Euro 4 diesel when the government hasn’t decided what the “M” means in its prior statement that 2015 will see the introduction of Euro 4M.

Another hard thing is that a car manufacturer needs about two dozen licences or approvals – including price approval - to make and sell a car in Malaysia. Price approval – a process used to protect Proton and Perodua from price competition – usually takes more than a week.

At least two companies are getting ready for the upcoming market liberalisation.

Perodua this month announced a multi-billion investment plan for the future. It’s the richest car company in Malaysia, having benefitted wisely from the protection of national cars.

It’s positioning itself to make energy efficient cars under the new NAP. Who knows, it may be the first in Asean to make fuel efficient cars that will equal the “greenness” of the light hybrids at a significantly lower cost than the current breed of Honda mild hybrids.

Then, there is Green Oranges Sdn Bhd (GO), a company owned by the second family of the late Tan Sri SM Nasimuddin SM Amin.
Holding the franchise to import and sell vehicles from Great Wall Motors, China’s second biggest car exporter, Datuk Haji SM Shalahuddin SM Amin increased his equity in GO to a controlling stake early last month.

Like the Great Wall Motors Haval which was awarded the SUV of the Year by the NST-Maybank’s Car of the Year panel of jurors last year, many of China’s cars will be the beneficiaries of Malaysia’s car market opening.

The third initiative revealed by MAI is that it will establish an Malaysian Automotive Council (MAC) to steer the industry to the goal of making Malaysia an automotive industrial hub.

Hopefully, the council will include individuals who are both veterans in the industry and who are independent by virtue of being pensioned. Names like Datuk Kisai Rahmat, Tan Sri Ab Rahman Omar, Datuk Donald Choo and Datuk Michael Lim come to mind.
It should also have the current captains of industry and stalwarts like Datuk Ben Yeoh, Datuk Ang Bon Beng and Datuk Aminar Rashid.

It should have Tier 1 vendors like Yeap Swee Chuan of Aapico. A Malaysian who is one of the biggest Tier One vendors in Thailand, Yeap made his fame there when his proposals to Proton were rejected and he decided to uproot and go north to find his fortune.

“You know, I’ll come back to Malaysia even more now. I’m a Malaysian and I’ve always wanted to start more businesses in Malaysia. I’ve not given up,” he said on the sidelines of his mother’s funeral in Petaling Jaya last Sunday.

In addition to the 20 plus licences and non-tariff barriers protecting the national cars, there is still the possibility that DRB-Hicom, acting to protect shareholder value like any good-for-profit company, will secure a new round of protectionism.

There’s also the possibility that the MAC, chaired by the Minister of International Trade and Industry, may not have the ear of the government.

If the current Minister, Datuk Seri Mustapha Mohamad is there, the industry can take comfort that this is one of the best technocrat ministers in place.

But what if in the future, there is a lesser person? The best long-term solution is for the MAC to focus on removing the thicket of licences and approvals that artificially strangle the competitiveness of the volume challenged Malaysian automotive industry. Liberalisation is the best long-term solution.