The Chronicle of Malaysian Automotive Industry
The Chronicle
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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.
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.
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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