Malaysia writing the next chapter for its automotive sector

NAP 2014 emphasises on green initiatives with an objective to make Malaysia the regional EEV hub by 2020, while NAP 2018 is expected by end of this year

By RAHIMI YUNUS / Pic Bt TMR

It was a euphoric day for the Federation of Malaya on Aug 31, 1957, when the country finally gained independence after enduring more than 400 years of colonisation and foreign rule.

Despite the excitement, the nation’s forefathers knew that the fate of the country was in their hands. The challenge was herculean. The country’s fate and future, and the rakyat were at stake.

The country needed to be transformed from an agricultural-based economy to an industrialised nation in order to survive and compete with the rest of the world.

Malaysia’s industrialisation process, however, dated back to the pre-independence era.

Dr Mahathir has mulled the idea of a 3rd national car company and Asean car to push the industry and the nation forward

But only in the 1980s that the country embarked on the national automotive project, Proton, an acronym for Perusahaan Otomobil Nasional.

But the country was no alien to the automotive sector with Ford Malaya founded in Singapore in 1926 as a regional distributor of Ford products. In 1967, Volvo Cars established its assembly plant in Shah Alam, Selangor.

But Malaysia wanted more than just a car assembler. The nation wanted to acquire the technology and engineering capabilities to produce its own cars.

Prime Minister (PM) Tun Dr Mahathir Mohamad in his first term as PM saw Proton as more than just a national car project.

It was meant to spearhead the country’s industrialisation agenda.

A joint venture was formed between Heavy Industry Corp of Malaysia Bhd (Hicom), Mitsubishi Motor Corp and Mitsubishi Corp that gave birth to Proton in 1983. Two years later, the first national car, Proton Saga, was launched and the chronicle of Malaysia’s automotive journey began.

Automotive Industry Grows by Leaps and Bounds

Less than 10 years after the Saga was rolled out, the country saw the establishment of a second national carmaker Perodua, or Perusahaan Otomobil Kedua Sdn Bhd, in 1993, with Japanese partner Daihatsu Motor Co Ltd.

A year later, a heavy vehicle company, Malaysian Bus and Truck Sdn Bhd, was incorporated, followed by the incorporation of a motorcycle manufacturer, Syarikat Motosikal dan Enjin Nasional Sdn Bhd, or Modenas, in 1995, and light vehicle commercial manufacturer, Inokom Corporation Sdn Bhd in 1997.

Proton lab engineering at University of Malaya-Industrial Innovation Centre. Proton upgraded its technology capability to become an original design manufacturer in 2000

Proton upgraded its technology capability to become an original design manufacturer in 2000 and acquired the knowledge of engine manufacturing in 2002 following its acquisition of the British sports-car maker Lotus Cars and technical collaboration with another European engineering firm.

The automotive industry mushroomed as production and sales volume surged.

Starting at 95,000 units in 1985, Malaysia’s total industry volume skyrocketed more than 200% to 286,000 units in just 10 years, outpacing its neighbouring countries.

Malaysia ranked among countries with high car ownership ratio in the region with a ratio of 200 cars for every one thousand people.

In 2014, market research agency Nielsen revealed that Malaysia had the third-highest rate of car ownership in the world with 93% of households owning a car, only behind the two wealthy principalities Liechtenstein and Monaco.

The boom in sales has attracted global original equipment manufacturers (OEMs) including component manufacturers to set up their base in the country.

Toyota Motor Corp, Honda Motor Co Ltd, Nissan Motor Co Ltd, Mercedes-Benz (Daimler AG), Volvo, BMW AG and Peugeot (Groupe PSA) are some of the players that have set up operations in Malaysia.

For international component manufacturers, TRW Automotive, Delphi Technologies, Continental AG, Nippon Wiper Blade (M) Sdn Bhd, Denso (Malaysia) Sdn Bhd and Robert Bosch GmbH are among companies that have made Malaysia their base to launch their products in the region, along with local counterparts such as APM Automotive Holdings Bhd, Sapura Technology Sdn Bhd, Delloyd Industries (M) Sdn Bhd and Ingress Corp Bhd.

The automotive industry also spurred the growth of supporting industries such as mould and dies, metal casting, machining, metal stamping, metal surface finishing and heat treatment.

Currently, Malaysia has 28 OEMs, 650 parts and components manufacturers or vendors, and 53,011 after- sales business companies.

Some 400 vendors are in Level 3, 90 of them in Level 4, which have tooling development capability, and 27 in Level 5 with research and development (R&D) capability.

Export for vehicles stands at around 30,000 units per year worth RM1 billion.

Meanwhile, export for parts and components has reached RM11 billion yearly for a variety of products including steering columns, alloy rims, infotainment system, lighting and sensors, tyre, side panel glass and many others.

All in all, the automotive sector supports more than 750,000 jobs in the country and contributes 4.5% to the national gross domestic product.

The industry gives RM6 billion a year in the form of taxes to the government revenues.

NAP and the Way Forward

Export for vehicles stands at around 30,000 units per year worth RM1b (Pic by Ismail Che Rus/TMR)

The National Automotive Policy (NAP) was first introduced in 2006 to facilitate the required transformation and integration of the local automotive industry to regional and global networks within the increasingly competitive environment.

The policy was reviewed in 2009 to focus on enhancing the capabilities of the domestic automotive industry and creating a more conducive environment to attract investments.

Another revision in 2014, named the NAP 2014, emphasised on green initiatives and market expansion, with an ultimate objective to make Malaysia the regional energy efficient vehicle (EEV) hub by the year 2020.

EEV penetration increased for the fourth straight year in 2017, reaching 52% of vehicles sold in the country. The NAP 2018 is work in progress and expected to be announced late this year.

As it is, the policy has signalled earlier that it would focus on connectivity, mobility, next-generation vehicles, lifestyle and big data, which are in line with the transportation solution of the future and to facilitate the growth of a high-value economy.

All sounds rosy and glory, but many analysts, market observers, the players themselves and even the rakyat say that the local automotive sector has plateaued and sees nowhere else to go.

Today, the industry has well matured with 590,000 units a year and a growth of hardly single digit.

Non-national cars have eaten the market share of the national cars, particularly Proton, by about 10% today, reduced from 75% during its golden era in the 1990s.

On vendor front, despite having some of the well-established local firms, critics are saying that the majority of them are still lacking in terms of technological progress and they are unable to compete with the counterpart in Thailand, who has no national car whatsoever, but manages to develop more advanced component manufacturing clusters.

This has translated to the creation of jobs which most of the time are not high-skilled as opposed to what the country would need to become a high-income nation.

Malaysia’s Automotive Sector Needs Soul-Searching

Industry veterans argue that the government needs to liberalise the industry as to what Thailand has successfully done.

In view of this, the current PM, who is the same man behind Malaysia’s early journey in the automotive path in the 80s, wants to inject new hope for the industry.

He has mulled the idea of a third national car company and Asean car — whichever how people want to see it — to push the industry and the nation forward.

“All three of Asean’s major car producers (Thailand, Indonesia, and Malaysia) are competing to lock in R&D, battery manufacturing facilities and EEV development investments from foreign OEMs. From the way things are developing, it looks like Malaysia is going down the national car route to compete for this (via a foreign partner),” MIDF Research said in a note.

His idea, however, has been facing disapprovals with very well- founded arguments too, that now it is left to the government to tread the next path of the automotive sector without jeopardising the status quo. Afterall, it may not be a zero-sum game.