Malaysia Mulls Changing Its Foreign Auto Policy

KUALA LUMPUR, Malaysia (AP) -- Malaysia may remove rules that protect its auto industry from foreign competition, officials said Tuesday, as the government presses ahead with a review of the cosseted industry.

Deputy Prime Minister Muhyiddin Yassin said the government hopes to complete a review of its 3-year-old auto policy by September to boost investment in the industry, which like other sectors of the economy has been hit hard by the global economic slump.

"The automotive industry in Malaysia needs to be energized and revitalized," he told a two-day auto conference here.

"It cannot continue to depend for too long on government protection. The industry must focus on operations and cost efficiency to reduce cost, increase productivity and sell more through innovative marketing strategies," he said without elaborating.

Malaysia is Southeast Asia's largest passenger vehicle market, with about half a million vehicles sold annually. The domestic market is dominated by national car maker Proton and a second national company Perodua.

In 2006, the government reduced import taxes on most imported vehicles and lowered car prices to make Malaysia a regional auto hub. But it still has high taxes on locally assembled foreign cars and privileges are given to national carmakers.

Recently banks hiked lending rates for foreign cars, giving an unfair advantage to national cars.

Meanwhile, Malaysia is facing stiff competition for investment from neighboring Thailand which has gained a reputation as "Detroit of the East." With no domestic automakers, Thailand has become a regional base for many global automakers by offering better tax incentives and removing ownership constraints on plants or subsidiaries.

"We are looking at a policy that will not make Malaysia lose again," Kamaruddin Ismail, the trade ministry's deputy secretary-general, told the conference.

"We cannot continue to have protectionist policies forever. We have committed to open up for the auto sector," he said.

But Proton and Perodua officials cautioned that any further liberalization must be done gradually and not harm local companies.

Syed Abdul Hafiz Syed Abu Bakar, managing director of compact carmaker Perodua, said even governments in Europe and America are now bailing out their domestic carmakers amid the global slump.

"We should not be afraid to protect ourselves. At the end of the day, it's every country for themselves. We have to liberalize but it must not be overnight. It must be done in stages," he told reporters on the sidelines.

Perodua has been the top selling car brand in Malaysia for the past three years.

"The mind-set has changed. The very same countries that advocate free trade are now" protecting their own companies, said Proton Managing Director Syed Zainal Abidin Syed Mohamad Tahir.

He said production capacity in Malaysia is at 800,000 units a year but only half of that is used. He urged the government to consolidate the industry to cut excess capacity and give export incentives to local carmakers.

Muhyiddin also said the government will promote "green and clean technology" for vehicles as part of its new policy. Special focus will also be given to encouraging the development of the automotive parts and components sector, he said.