Wednesday, 28 October 2009

The National Automotive Policy (NAP) is out...

Malaysia National Automotive Policy

The National Automotive Policy was announced this morning. This is my take on the NAP...

The NAP had addressed the automotive eco system in quite an entirety from recognising the importance of Proton and Proton's future direction as a National Car, addressing policies that affected the vendors, dealers, bumiputra participation, the stagnant and saturated market as well as the direction towards FTA.

The NAP addresses three main aspects imperative to the automotive eco-system. In particular it addressed the conflict of the two national car maker competing rather than complementing each other as oppose to the main objective of the two national car projects that was approved by cabinet in the early 80s for Proton and mid 90s for perodua. The NAP provides a pragmatic future direction towards FTA with the abolishment of open AP BY 2015 and franchise AP by 2020. Secondly, it specified the importance of bumiputra dealership in the network and the critical issue faced by the vendor through unregulated import of used parts and component. Thirdly, it addresses the overall saturate and stagnant automotive market”.

1. The public will benefit from the economies of scale gained from preserving specific market segment in domestic market share for Proton. The Second national car project that was launched in 1994 was meant to complement Proton and expand local automotive product range. However, both Proton and Perodua are currently competing in the same market segment which saw the market share for the same small segment being divided and hinder any economies of scale benefit.

2. This had led to a lower production (for vehicle in the same segmet) under-utilising the production capacity by both manufacturers in a stagnant if not deteriorating market segment.

3. PEDA also lauded the clear directive to increase bumiputra participation in dealership network. However, the existing 100% bumiputra owned dealership that is currently a minority with a total of less than 20% of the dealers network, should be preserved and nurtured.

4. There is nothing new in the requirements for strategic partnership between Proton and a global established OEM particularly to increase export & make Malaysia as the production hub for the region; transfer of technology & implementation of R&D activities locally; and increase in local content & enhancement of bumiputra vendor programme. This has always been Proton’s direction even during Tengku Mahaleel’s tenure. It was for the same requirement as well as the ‘pricing’ that Proton was unsuccessful in getting a strategic partnership in the past.

5. However, new policies under the NAP, in particular the tax/duty exemption on the value of increased Exports of Vehicle and Parts/Components and the gradual removal or reduction of import duty to meet the commitment of various FTAs will be more attractive to attract a foreign strategic partner for Proton.

6. The Mandatory annual inspection for vehicles above 15 years as a first step towards implementing a Vehicle End of Life Policy is a good move and in line with other developed countries. Other developed countries such as Britain had long imposed such a requirement. The annual vehicle inspection is will ensure all vehicles are road-worthy and would not endanger other drivers.

However, the scrapping policy that was introduced under the 2nd financial stimulus should be continued especially with the momentum that has picked up. Although the quantum offered to scrap 10 years and older vehicle is low but it should be an option given Malaysia’s relatively high average vehicle age. In britain, the cost to comply to the annual vehicle inspection is more expensive than the cost to scrap the car.

7. The scrapping of old cars is important for our automotive industry that is now quite saturated. The introduction of Vehicle end of life policy will address our saturated automotive market as well as vehicle road worthiness and environmental issue.

8. The NAP phasing out of imported used parts and component including the half-cut (kereta potong) will benefit all parties from the public, Proton vendors as well as the authorized service dealers.

9. The usage of imported used parts and component does not warrant the buyer, will void any vehicle warranty and may endanger the user. The sale of used imported parts and component had also affected the vendors and authorized Proton service dealers. Vendors and dealers only deals and sell original OEM parts and component.

The full press release by the Ministry of International Trade and Industry is available here.

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