Monday, 25 May 2009

The Chronicle of Malaysian Automotive Industry

The Chronicle of Malaysian Automotive Industry

I was first exposed to the automotive industry during my tenure with the Commerce International Merchant Bankers Berhad (CIMB) in 1995. I was in Corporate Finance and had to write various sectoral studies amongst thick full of other documentations for submissions to the Securities Commission for various companies undertaking mergers & acquisition and IPOs. Those companies in my portfolio were mostly in automotive... probably the reason being why i am still passionate about the automotive industry 15 years later.

I summarised as follows the evolution of the automotive industry in Malaysia that will probably answer various public critics (in cyber space or the media) in my call to de-regulate the hire-purchase commission, de-regulate the fix motor tariff as well as the establishment of an AUTOMOTIVE COUNCIL as the custodian to the automotive eco-system.

The automotive eco system should be defined as all relevant sectors that is instrumental to the the stability of the automotive industry, such as the automotive manufacturers, assemblers, suppliers, vendors, distributors, dealers, banking institutions and insurance institutions.

The Chronicle

1963- Malaysia began to encourage the establishment of the automotive industry based on recommendations of the Colombo Plan

1964- Policy of encouraging the assembly of automobiles and the manufacture of components parts was announced

1967- Government approved the operation of six (6) assembly plants mainly joint venture projects between European automobile manufacturers and local partners

1982- Cabinet approved the National Car project

1983- Heavy Industry Corporation of Malaysia (HICOM) signed an agreement with Mitsubishi Corporation to manufacture Malaysia national car

1984- Launch of National Car Project- Perusahaan Otomobil Nasional (Proton) to increase level of technology and develoment of intellectual property in the automotive industry. In line with the national car project, Malaysia Ministry of International Trade and Industry (MITI) determine the Nett Selling Price (NSP) of BOTH national and foreign cars.

1985- Production of 1st national car Proton Saga began. MITI approved the NSP taking into consideration various factors including the income (1) received from previously Hire-Purchase Commission (now replaced by Handling Fees) paid by banks to the car distributors and dealers as the intermediary between the customers and banks; (2) insurance commission received (Insurance agent commission was 25% of premium paid. The participation of Bank & financial institutions and Insurance companies supported and ensure the viability of the newly-born national car project.

1992- Perusahaan Otomobil kedua (PERODUA) was established primarily to complement Proton and expand local automotive product range (supplying smaller and more affordable vehicles) as well as support the vendor for component and parts manufacturing.

Both Proton and Perodua are now in direct competition in the same market segment and had driftered away from the objectives of the 1st and 2nd national car project.

1996- The Insurance Act 1966 superceded the Insurance Act 1963. Agency commission is now revised to a fix 10%.

The support by via the insurance agency commission that determined the low NSP for the national car project was ignored.

1997- Hire-puchase commission and additional incentives for salesmen paid by banks were abused and offered for all car make & models (not restricted to proton).

2000- Bank Negara Malaysia revoked the hire-puchase commission after being proposed by the association of finance companies/Banks. Bank Negara Malaysia introduced handling fees with effect from 13 July 2000 after various appealed by PEDA, EDAM and PDA. The handling fees is regulated with a maximum ceiling.

The hire-purchased commission was revoked without any reference to the NSP that was kept low (by MITI) to ensure the viability of the national car project. In year 2000- the NSP was still determined by MITI.

2003- MITI no longer determined the NSP and only acknowledge and monitors the price set by the car manufacturers. The Policy change was to aid liberalisatoin and development of the automotive industry in Malaysia.

2004- Influx and abused of Authorised Permits (APs) and under-declared imported cars. Malaysian public was cheated of billions in taxes and import duties. There were many duplications of resources from the under-utilised assembly to manufacturing plants (approved by MITI).

This had drastically and substantially affected the national car project project.

2005- Announcement and launching of the Malaysia National Automotive Policy.

The NAP was constructed and launched by the previous 4th floor (was not even launched by any Minister), with negligible consultation with any stakeholders in the automotive eco-system.

2009- Proposal by PIAM and approved by Bank Negara Malaysia for Motor Insurance mandatory direct commission rebate to customers.

If the move was proposed and approved for the benefits of Malaysians then PIAM and Bank Negara should de-regulate the current tariff instead. Malaysia will benefit better from a de-tariff or variable tariff similar to other neighbouring and developed countries. Currently, low risk customer such as female car owners are being discriminated and are paying hefty premium similar to the high risk customers.

Sadly, there is no 'Driver' and/or custodian for the automotive eco system although the automotive industry was earmarked to boost the industrialization process to enable Malaysia to be a developed nation by the year 2020 (Ref: here).

Bank Negara Malaysia, Ministry of Finance, Ministry of International Trade & Industry, PIAM (General Insurance Association of Malaysia), Association of Banks, Ministry of Domestic Trade and Consumer Affiar have all proposed, implemented, revised and introduced policies and instructions that will be instrumental to the downfall of automotive industry and its eco system in Malaysia. Without a custodian or a statutory body to drive and spearhead the automotive in Malaysia, there will be more adverse policies being introduced by different Ministries and statutory bodies.

The national car project, the automotive industry as well as various government policies introduced, must be rationalise, consolidate and review under a statutory body, the proposed MALAYSIAN AUTOMOTIVE COUNCIL. A rationalisation of the many automotive assembly and manufacturing plants and a more structured eco system could provide better stability to the automotive industry.



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10 comments:

  1. 2004 - Malaysian pubic???

    ReplyDelete
  2. my take is the focus of this chronicle is swayed towards its effect to the auto dealers not the public. I totally understand, since it is your forte and your biz and furthermore it is your blog.

    However what about the public's right to own quality cars, please be truthful, we can all agree proton is substandard. It has been since day one and its shoved down our throats in form of price protectionism.

    I think AP's should be eliminated too. Enough subsidizing already la.. I'm a bumi and I have easily paid more than 100k in AP's for purchase of my cars and/or replacements. and for what?? for a group of people to live lavishly and have private heli's?

    This sucks! Lift the damn taxes, I wanna pay what americans/british pay in USA/england for a honda/merc/bmw/porsche that way I get value for MY money. I'm quite sure Proton would need 30 dealerships only after that i.e Two in each state.

    TAX me in other ways and make sure the money gets to the govt coffers not enriching AP holders.

    ReplyDelete
  3. Anonymous 1, typo error.. thanks for pointing out.

    Anonymous 2,
    The objective of the Chronicle was to highlight the direction the Government adopted towards industrialization... hence the management of the economy. In a macro overview, the spill-over effect from the industrialization process benefitted the Public.

    When Proton quality was sub-standard... trust me.. WE the dealers know when frequently customer attacked our showroom for warranty and for quality dissatisfaction... WE, the DEALERS are the frontliners. Today, Proton quality of cars is as good as kia (not naza) and Toyota, better than Hyundai BUT... the after sales can still be further improved. If only satisfied Proton customers are as vocal as the dissatisfied public, then it would provide a balance view. but Proton as a substandard is a perception that the Public held against proton and it would take awhile to regain back the confident. Toyota is world class because of the efficient after-sales-service that Proton is still lacking (compare to Toyota).

    Yes... i agree Proton Price was shoved down the public's throat when MITI determine the car net selling price (NSP) BUT since 2003, the prices of all cars are determine by market forces... (each distributor).

    AP was only a document originally introduced as a statistical measure to calculate the number of imported cars into the country. It was abused and capitalised by politicians and politicise by opposition.

    AP should be abolished and replace with the adoption of european automotive safety & quality standard requirement. this is more effective to control the influx of japanese and china cars dumping into Malaysia. Currently, any cars of any quality (no matter how messed up) can enter Malaysia.

    Cars in USA and England are cheap because of the STRONG CURRENCY and EXPONENTIALLY massive population (economies of scale) compare to Malaysia Ringgit and RM20m population... it is not cheap because of NON-protectionism.

    Nonetheless, soon american and british may be CYCLING OR WALKING as the main mean of transportation since all their car manufacturer are going into bankruptcy... heheee.....

    ReplyDelete
  4. good respond, though I may not agree on all your points. Excuse my assumption,
    In order to believe I must understand:
    1)are u a businessman seeking a platform to protect your ventures and those you represent in PEDA?
    2)are you a Malaysian voicing his concern about the auto ecosystem to the public for the public.

    Because you can't champion both causes without neglecting your blog's integrity.

    I have to disagree on quality, lets take Gen2 and Toyota basic equivalent. Two brand new Gen2 purchased 4 years ago, which two of my employees is driving is falling apart (pintu la tak bley lock, tingkap buat hal, wiring pun ada issues ). The Toyota of the same age is still void of these basic problems. Of course I'm not privy to statiscal numbers, but a mere observation by an end user is enough to stop me from another purchase. Trust me, it's not an image issue.

    I take it we are on the same page on AP issues and I'm all for your proposal for a quality standard requirement so long as its operations is not privatised to create another multi millionaire.

    I think we should stop importing reconditioned cars, they spawn from the ridiculous taxes of new vehicles. This would eliminate dumping, new substandard cars would be otherwise addresed in your idea on adoption on european q&s std.

    Proton bley pass ke test you ni?

    I agree on exponential factors in pricing but you cannot discount our heavy tax factor which gives Proton its edge and creates room for corruption on import taxes.

    I'm aware Kia/Naza got around it through glueing bumpers locally and calling it a local assembled car, hence, magically appear: new tax scale for them. Unfair to Proton: agreed.

    Address Proton as a manufacturer, Can Proton really compete? Is it really worth it?

    Q1:
    if/when Proton fails, do you think that malaysian taxpayer monies should be used for the dirty seven letter word....BAILOUT?
    Q2:
    usage of singapore's public auction of COE for vehicles to replace taxes and AP's.?

    your take.

    ReplyDelete
  5. Dear Anonymous...

    As the President of PEDA, i am duty-bound constitutionally to protect the interest of my members who are the autothorised dealers to Proton.

    As a proton dealer.. i have to eliminate the misconception the public have especially for Proton!

    As a Malaysian, i too crave for various transparentcy especially in the management of automotive eco system... hence, in the best interest of the public- such as.. mandatory motor insurance rebate to the public??? this does not benefit the public.. not when 40,000 agents/employees (not car dealer) will lost business.. the public will benefit BETTER WITH DE-TARIFF of fix motor insurance.. motor insurance is MANDATORY every year to be renewed!! doesnt the public deserve a cheaper motor insurance from the de-tariff? why is the low risk customer paying similar to the high risk customer? this difference in motor de-tariff is more than the 10% rebate!

    The 'integrity of my blog' lies in 'my opinions' and is independant from my elected post in PEDA and i too, like you, is a Malaysiann citizen and my blog represent the general public too.

    Car Quality issues between proton (NOW - during Syed Zainal) and Toyota are both of equal standard (i have friends that bought a toyota and had various problem with the car).. the DIFFERENT between Proton & Toyota.. TOYOTA is excellent with after sales service. all warrantable items are inspected during the 'service period' to ensure quality is maintain. All warrantable items are replaced without hassle.. hence, the car remain intact years thereafter.

    Proton After sales service is improving (and soon will be at par).. Historically, when a proton car is brought for service, it is only 'serviced' without any over all checks to ensure all warrantable items 'sempurna'.. hence.. the moment, the warranty period expires, everything fall out.

    Pre- Syed Zainal.. the onus of warranty claim approval behold the customer!!! customers have to prove validity of the warranty.. (such as prove of service receipt at proton service centres etc, stamp on service book is not enough!!).. Toyota, warrantable items are replaced without hassling the customer!!

    when the car problem especially warrantable items are not neglected, then the car became problematic.... this problem has badly damage Proton Image!! IT IS AN IMAGE ISSUE...!! that warranty and defective parts problem is better manage now under proton iCare that reports directly to the BOSS Syed Zainal. Buy, use a new Proton and judge for yourself..

    I am in favour for the AP abolishment and the implementation of European or world class safety standard regulation for any cars to enter Malaysia.... BUT

    what does these imported cars (through AP - CBU) contribute to malaysia? they are imported into Malaysia.. then? what happens to the hundreds of thousands malaysia car factory worker? vendors?

    (we dealer-can just change signboard and sell other brands -worse case scenario-.. but the employment in the manufacturing of Proton/Perodua/kia.. close to 250,000 people???) mind you, this imported cars that enters malaysia are dumpings of global ex-stocks of cars..

    So.. my personal Xtreme view- MALAYSIA SHOULD BE OPEN TO ALL & ANY CAR MODEL AND MAKE.. BUT THEY MUST BE MANUFACTURE IN MALAYSIA!!!!!!!!!! NO CBU!!! Malaysia infrastructure of car manufacturing & assembly plants have enough capacity for any cars to be locally manufactured/assembled. we should only allow CKD cars in Malaysia!! NO AP. NO imported cars!! We should stop importing cars completely!! HENCEFORTH, the excise, tax will not be of any issues. and all cars will be competitive.

    ReplyDelete
  6. (Continue...)

    Proton as a manufacturer produces only 150,000 cars annually.. compare to the millions of cars produced annually (for 3 times more experience- proton is only 20 years old) by Toyota, honda, suzuki or other brands... BUT PROTON PROVIDES THE MOST EMPLOYMENT IN MALAYSIA COMPARE to toyota, honda, suzuki or other models.
    with only 150k production annually

    So... NO PROTON CANNOT COMPETE with manufacturer that produces millions of cars annually YET!! for the employment and opportunity proton contributes... YES it is WORTH KEEPING PROTON AS A NATIONAL CAR PROJECT AND AS AN INDUSTRY.

    your Q1:
    When PROTON FAILS because of their own imcompetency IT SHOULD NOT BE BAILED OUT!! THE PEOPLE RESPONSIBILE FOR IT, MUST PAY THE CONSEQUENCE!!! but Proton did not fail because of incompetency.. PROTON almost fail because of GOVERNMENTAL POLICY.. underdeclaration of IMPORTED CARS... EXCESSIVE ISSUANCE OF APS.. Bank discriminating proton buyers.. bank pulling handbrakes to proton vendors, dealers etc.....

    your Q2:
    yes i agree with Singapore COE for cars... but singapore needed to maintain a maximum number of cars on the road... because they are tiny winy country... the whole malaysia car population on the other hand is only 20% of the number of cars in BANGKOK town.
    What we need, and what i propose to the ministry of finance, is to adopt a one-time tax/excise payment for all malaysian to buy a car. the tax payment can be transfer (or top-up for bigger car) by the car owner to replace the car. but then this will reduce the government income substantially................. hmm

    ReplyDelete
  7. Come on Armin, in my honest opinion and observation new Proton quality is still very far from the new Kia's.

    ReplyDelete
  8. Paul,

    Coming from you.. Must be a generalise misconception from many others too. No wonder Proton is always being critisize... Sigh

    I can't deny historical quality of proton cars.. I too was attacked by dissatisfied customers..

    Which proton model as a comparison with which kia model
    Under your observation paul? It is quite subjective..

    But truthfully, quality-wise.. Proton will be at par, if the after sales & especially warrantable items replacement are more efficient. Then probably the misconception will dissppear..

    ReplyDelete
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