NAP Review 2012 – A Preview

MAI CEO M. Madani Sahari

As mentioned earlier, a revised National Automotive Policy (NAP) will be announced very soon. Earlier this evening, CBT just concluded a consultative session with the Malaysia Automotive Institute (MAI) regarding the third National Automotive Policy. Unlike the previous NAP, the Ministry of International Trade and Industry (MITI) is keen to avoid the snafu of the first two NAP and has appointed MAI to be a neutral focal point and think tank for NAP 2012.

Most of the framework for 2012 has already been finalized, CBT, along with other members of the media were invited to provide their input to further fine tune the framework. Our bossYamin Vong is well known for his very vocal views on the NAP, and made good use of this engagement session with MAI.

While MAI lead the drafting of NAP 2012, the actual date of announcement of NAP 2012 is beyond MAI's control and is the decision of MITI.

Still, we were given a glimpse of what to expect.

The engagement session with MAI was rather productive and contrary to popular conception, there are some few bright spots within MITI, and certainly with MAI's CEO M. Madani Sahari.

CBT readers may be interested to know that policy makers from MITI and MAI do follow closely the critical opinion pieces published on CBT as well as the feedback received from you readers, especially on the issue with Pekema's demands and our critical review of the current NAP.

We sincerely believed that there are some bright folks within the civil service with a genuine desire to reform our automotive industry. But local readers should also be well aware of the political dynamics of this country and sometimes compromises, especially with overly drastic reforms had to be made in order to achieve the longer term objective.

From what we understand, MAI has been working very hard to convince the cabinet that some of our current automotive industry policies are simply intolerable and has to go.

At the moment, we cannot reveal the full detail of the discussion but here some interesting bits that we can reveal.

• NAP 2012 has undergone consultative sessions with over 50 organizations, over a period of three months ending in November last year. Unlike the previous NAP, MAI is playing the role of a facilitator, working hand in hand with stake holders to raise their level of competitiveness.
• MAI recognize the mechanisms to implement the objectives of the earlier NAP left much to be desired. As such, NAP 2012 does not seek to introduce any radical changes in the objectives but improve the delivery mechanism.
• The latest review of NAP is motivated by two factors - the external factor of a looming energy security and sustainable development / environmental related issues and the internal factor of a price imbalance due to rising material cost (while car prices remained the same) resulting in serious price pressure on the industry

MAI recognize that Malaysia's automotive industry suffers from several structural issues :

• Lack of scale, which in turn leads to higher unit cost and lower level of competitiveness
• Lack of technology to develop the industry to the next level
• Critical missing links to support the industry's processes. An example is our inability to manufacture a tooling mould for certain key components. At the moment, Malaysia still relies on imported moulds from Taiwan and Thailand. To put it bluntly, the ambitious plans of the original national car policy was only interested in the glamorous part of running but yet haven't learn to tie its own shoelace.

NAP 2012's action plans seeks to address these core structural issues.

MAI is pragmatic enough to realize that Malaysia is not in a position to challenge Thailand or even Indonesia's automotive industry directly, as these two markets benefit from a significantly larger domestic market (higher scale) and lower labour cost.

NAP 2012 will seek to built on Malaysia's existing strength in passenger cars (versus pick-up and SUV in Thailand and MPV in Indonesia). To a certain extent, Malaysia also offers a safe haven from natural disasters, like the ones that seriously knocked out Japan and Thailand last year.

The way forward is to promote green technology. The previous NAP seeked to promote this but had little focus. MAI recognizes that Thailand is already a well established base for eco-cars.

However, the Thai eco-car policy is still a very product and production volume centric one. NAP 2012 will seek to promote a more holistic green ecosystem - from production processes to supply chain.

Unlike the current NAP, the focus will not be limited to just hybrids, but also conventional internal combustion engines that meets a multi-tiered fuel economy and exhaust emission target. There will be a table with a fixed set of targes, split by vehicle segment and kerb weight, similar to a model currently adopted in Japan.

And yes, clean diesel was also given attention and although we can't reveal much at the moment, we were told that the target for Euro 4 petrol and diesel introduction will at 2015.

This is good news to owners of clean diesel BMW models like the newly launched BMW 320d.

Of course, this will also imply a revamp of fuel pricing policy is in the plan. Again we cannot reveal much at the moment but MAI assures that a lot of thought has been put on this issue.

NAP 2012 recognize that a car is a sum of individual components made by a wide array of companies. While OEMs (original equipment manufacturers) often hog the limelight, it is automotive vendors that contribute most to the country. Automotive vendors export RM 5 billion worth of components a year, versus RM 700 million from OEMs.

Provisions have been included to promote not just foreign direct investments but also domestic direct investments.

The previous NAP's ELV (end-of-live) vehicle scrapping policy was grossly misunderstood, even among some automotive publications. ELV does not mean all cars beyond a certain age must be scrapped. As long as a car is passed its road worthiness test, it can stay on the road indefinitely. All developed markets have ELV policies in place in the interest of road safety as well as generating healthy sale of new cars.

But NAP 2012 recognize that until the industry has completed a certain level of reform, implementing ELV is not practical and in the short term, it will only seek to promote voluntary vehicle inspection.

After sales under the 'Market expansion and outreach column' means recycling and re-manufacturing of scrapped car parts. In short, this is about regulating the half-cut 'kereta potong' business.

Because of the stringent vehicle inspection laws in Japan (called 'Shaken' inspection), the cost to pass a Shaken with a car older than five-years old is very high. Certain components like brakes must be replaced compulsory, irrespective of its present condition. These scrapped cars are often snapped up by grey importers and lapped up by Malaysians.

Even older scrapped cars are cut into half (regulation requirement to ensure they don't get back on the road) but because of the high labour cost in Japan, the actual dismantling work is done in countries like Malaysia. Presently, Malaysia exports about RM 500 million of scrapped parts to markets like USA.

However in many of these importing countries, their government are introducing stricter regulations to standardize the process of automotive parts recycling and re-manufacturing. Unlike the previous NAP, the revised policy will not seek to ban use of these parts, but to regulate the market. We were told that stake holders from the half-cut business operators are actually very supportive of the new plan because it helps them to comply with the new regulations at the importing countries.

Under current EU laws, all vehicles sold in European Union markets must have at least 85 percent recyclable materials. Some models like the Nissan Leaf, already achieves 95 percent recycling rate.

Under the current NAP, manufacturing license for models below 1.8-litre or RM 150,000 are frozen (this applies only to new applicants and not existing manufacturers like UMW Toyota or Honda Malaysia or Edaran Tan Chong Motor). NAP 2012 will retract this condition. Instead, any car that meets EEV requirements will be given a license. There will be no other conditions, unlike Thailand's eco-car, which imposes conditions on minimum investment and minimum volume produced.

However, this also implies that the manufacturing license will no longer be given to cars who do not meet EEV requirements.

This will be a welcomed boost to manufacturers like Ford, whose entire engine line-up will eventually only consist of the highly efficient EcoBoost range.

EEV requirements will be based on meeting a minimum fuel economy standard (UNECE R101 test cycle, essentially European NEDC cycle minus the cold start cycle which is not relevant to us) and CO2 emission. Sharp thinking readers will realize that CO2 emission is a function of the fuel quality. In the short term, until Euro4 fuel is introduced, fuel economy figures will be the only criteria considered.

Interestingly, we were told that MAI have spoken to stakeholders in the oil and gas industry and storing a greater variety of multi-grade fuels in fuel station's underground storage tank is not an issue. In past, we thought that fuel stations have a limited number of underground storage tanks and to introduce a greater variety of fuel (for example, subsidized and non-subsidized petrol and diesel) will be a problem that requires massive renovation cost to solve.

According to MAI, based on their consultative session, most fuel stations in Malaysia can accommodate a greater variety of fuel grades and even if a renovation is required, the cost is not prohibitively high.

Overseeing the implementation of NAP 2012 is a newly formed Malaysia Automotive Council (MAC). Details on MAC's structure and role will be announced when MITI announce the details of NAP 2012.

All in all, I would say MAI read the minds of Malaysian motorist and consumers well. However the final say still lies with MITI. The next step step is for the public to use all the available channels to support MAI's work and to keep our elected ministers in check.

NAP is a sensitive topic and the timing of its announcement is going to be tricky, especially considering the next general election is rumoured to be very soon.

This is probably the last chance for Malaysia to right the wrongs done in the past. As a participant in the session noted, if we miss this chance, we will probably have to wait for another 25 years, when we have flying cars, to ride on the next technological wave.

By then, I am not sure how will the landscape of our country look like. In the 1960s, Philippines was the most developed economy in South East Asia. But years of corruption now left the country far behind its neighbours.