Proton's 4,000 acres Tanjung Malim plant
Within the region, Malaysia has the longest experience in the automotive industry. The first car plant in South East Asia was completed in 1941, in Bukit Timah, Singapore by Ford Malaya. Of course, back then Singapore was still part of Malaysia, or to be specific, Malaya. Thailand would only start assembling cars in 1961 (Siam Motors and Nissan Co Ltd.). By then Malaysia already had about 20 years of experience under our belt.
The 1983 National Car Policy, coupled with sterling economic growth established Malaysia’s as ASEAN’s largest car producer. The Malaysian car industry hummed along pretty well until the new millennia came. Thaksin Shinawatra became the prime minister in 2001 and swiftly formulated Thailand’s master plan for industrial development.
Within this bigger plan was Thaksin’s “Detroit of Asia” vision. Thailand’s Ministry of Industry released a 300-page document titled “Automotive Master Plan 2002 -2006,” and 60 percent of its content focused on implementation.
By 2003, Thailand overtook Malaysia as the top vehicle producer in the region. Malaysian ministers never quite knew what hit them.
When quizzed about the fall in our relative competitiveness, our ministers’ typical answer would be something like “Thailand’s assembly-based model of building other people’s cars is different from Malaysia, who posses full scale vehicle design capability.”
It was a fair answer, until we learn that Thailand is one of the six countries in the world to house Toyota’s global R&D operations, and one of eight country hosts to Bridgestone’s Proving Ground for tyre development. Companies like Isuzu no longer operates any development work for pick-up trucks in Japan, and has since transferred all design and engineering work for the D-Max to Thailand. So it is not entirely true that all the Thais do is just screwing together other people’s cars.
Isuzu D-Max - Engineered, designed and built in Thailand.
Plus, in a globalized world, no one single country handles end-end vehicle development work exclusively anymore. The Chevrolet Camaro, an iconic American car uses a platform designed by Australian engineers at Holden. Austria does not have any car companies but Magna-Steyr developed the folding hard-top for the Mercedes-Benz SLK. The Chevrolet Cruze had its developed work spread across South Korea, China and Germany.
And to further emphasize how globalized vehicle development has become, the Ford Mustang, the most American of all American cars, is designed by a Vietnamese American, Hau Thai-Tang. The Chevrolet Camaro is designed a Korean, Sang Yup Lee. A Chinese woman by the name of Wulin Gawao heads GM China Design studio and designed the Buick LaCrosse sold in USA. It's all about the best man or woman for the job. There was no talk about only an American can design an American car.
Wulin Gawao, Design Director of GM China Advanced Studio
SangYup Lee - Camaro's designer, current Chief of Exterior Design for VW
Hau Thai-Tang, Chief Engineer, Ford Mustang
The 2006 National Automotive Policy (NAP) was our government’s attempt to stem the decline. But the vaguely worded document, lacking both in implementation details and quantifiable targets (Table 2), created more questions than answers.
Compare Thailand master plan's well defined and quantified targets, with our vaguely worded original NAP document.
The Malaysian decline continued. By 2008, Indonesia’s vehicle production overtook Malaysia’s.
Indonesia is now the largest overseas market for Daihatsu while Toyota designated Indonesia as its regional manufacturing base for the Innova MPV, Fortuner SUV, and built Hino’s largest plant outside Japan in this country.
The 2009 NAP review did little to improve things. Spanning around 10 pages long, NAP 2009 ended with "MITI will coordinate with the relevant ministries and government agencies on the follow-up actions for the implementation of the NAP Review.” Endings like these suggests a poorly thought through policy.
A look at Table 4 suggests a not very flattering view of our NAP.
Productions of many critical hybrid vehicle components are still overly concentrated in Japan. Thailand makes the Prius and Camry Hybrid and while Taiwan recently started production of the new generation Camry Hybrid in Kuanying. A different version of the Toyota Camry Hybrid is also assembled in Australia.
Both the Australian and Thai governments provided huge funding support. The Australians provided a A$35 million (RM111.6 million) Australian Green Car Innovation Fund, while in Thailand, Japanese hybrid CKD packs are imported tax-free under the Japan-Thailand FTA in addition to lower excise duty rate (10 per cent instead of the usual 35 per cent).
Malaysia's excise and import duties exemption for hybrid vehicles expires by December-31 2013, with the assumption that some form of electrified powertrain Proton model will be launched by then.
In short, whatever Malaysia is offering, the Thai government will certainly match it. With so much investment already made in Thailand, manufacturers see no reason to repeat the tedious process of building a new production line or retooling the plants in another country.
In Malaysia, where fuel prices continue to be subsidised, hybrid cars are more of a novelty. How many hybrids can our market sell? Between January 2009 to December 2011, only 9002 hybrids were registered.
Such numbers don’t justify investments in factory tooling and jigs for local assembly. The additional price premium of hybrid cars can only be justified with fuel prices of around RM3 or RM4 per litre, as in the case of Thailand.
In other markets like Japan or Europe, fuel prices go up to RM6 per litre. So hybrids make perfect sense. Malaysia's inability to attract investments in green technology is a clear downside of fuel subsidy. It distorts the value of a diminishing commodity and removes any incentive to invest in more efficient green technology.
Part of Malaysia’s GTP is to transform the country into a high income economy. Hence NAP’s push to produce high value added components. Daihatsu’s decision to relocate production of its four-speed E-AT from Japan to Malaysia (Perodua) is commendable.
But in the greater scheme of things, it’s nothing to shout about, lest we fall into the jaguh kampung mentality. Japan is dominated by fuel efficient and modern CVTs (45 percent market share). Conventional four-speed automatics are dropping out of favour. The main users of Daihatsu’s four-speed automatics is not Japan, but Indonesia, for its low cost Daihatsu Xenia and its rebadged cousin, the Toyota Avanza, as well as Malaysia's Perodua’s models.
So it makes sense for Daihatsu’s Japanese plant to concentrate on the higher value CVTs. In transmission trend, four-speed automatics are like a cassette player in a MP3 iPod generation. Yes it still works, but it’s not something you want to show off.
In 2009, ZF Friedrichshafen AG, a Tier-1 transmission specialist and maker of Porsche’s famous PDK transmission, invested 20 million Euros in its Shanghai R&D centre, one of ZF’s eight in the world.
Meanwhile in Singapore, Continental, one of the world’s largest automotive parts supplier invested 21 million Euros in its new R&D facility. The seven-storey 10,170 sqm facility specialises in developing automotive electronics. Bosch also runs a similar R&D facility in Singapore.
BMW has design studios in both Shanghai and Singapore. Think tiny Singapore has no place in the automotive industry? Or that China is merely a low cost factory for the world? Think again.
Realising that by 2015, 40 percent of a car’s cost will be from electronics, Singapore is moving very fast to capitalise on its existing talent.
In 2008, the Singapore Agency for Science, Technology and Research (A*STAR) launched the A*CAR Consortium to develop next generation driver assistance system. On electric vehicles (EVs), the Singaporean government is partnering with car-makers Mitsubishi and Renault-Nissan, outdoor charging facilities provider Bosch, indoor charging facilities provider Greenlots (homegrown Singaporean company) and mobile user interface provider Singtel, to testbed EVs.
Every detail is being looked into – including charging facilities, safety, compatibility with HDB flats, charging rates, user interface (status checking via mobile Internet). Results and data gathered from the test will guide Singapore’s rollout of EV support infrastructure.
A Singaporean Mitsubishi i-MiEV (with Research-Development plates) demonstrating indoor charging solutions provided by Singaporean EV charging solutions provider Green Lots
Certain malls like the Somerset Shopping Mall in Singapore provide priority parking for alternative energy cars
Demonstration by outdoor charging infrastructure provider Bosch, on a Mitsubishi i-MiEV
EV is mentioned in our NAP, but so far, there is very little tangible result. The only party that has shown results is Proton’s EV prototypes. But without a supportive eco-system, the project is bound to flounder.
Malaysia is in the middle of Thailand, Indonesia, Singapore and China, not just physically, but also figuratively. We are stuck in the dead middle, too expensive for manufacturing jobs dominated by Thailand and Indonesia, while the same time lacking the intellectual base for higher value jobs.
On Malaysian car brands, the bigger question everyone should ask is whether a national car brand is still realistic. It’s a hard question that needs to be answered objectively, with data and facts, not ideological rhetoric.
The general rule of thumb for car companies is that you need to sell at least one million cars a year to remain profitable. However, most car companies think the figure is significantly higher now with more stringent safety, environmental regulations and high fuel prices requiring massive investment in R&D for new powertrain and body development. This is why joint collaborations are so common now.
BMW is the smallest of all mainstream luxury car maker and needs to sell 1.8 million cars a year to remain afloat, and this is a high margin luxury end of the market. The CEO of Fiat, Sergio Marchionne reckons the realistic figure is now five million cars, with space for only six mainstream automotive manufacturers.
Even South Korea’s large 48 million population can only support one car maker (Hyundai-Kia group). Samsung Motors and Daewoo now belong to Renault-Nissan and GM respectively. So against this reality, where does the Malaysian car fit?
Sweden, with its small population of nine million cannot sustain its Volvo and Saab cars. Australia’s 22 million population is struggling to keep its domestic car industry alive.
Thailand has 67 million people. It registers around 800,000 cars a year and is able to sustain a viable domestic manufacturing base, making it an ideal regional base for car makers.
The Malaysian car market size is around 600,000 vehicles a year. With the right condition Malaysia may be able to push it to 650,000 cars but any higher is not likely.
Car plants need very high output volume to be viable. And car makers build them closest to where most of their cars are sold and export the remaining.
So countries with a large domestic market always have the upper hand. Dangling tax breaks alone won’t convince car makers to build their cars in a country because it’s simply not economical.
Contrary to popular opinion, foreign car companies are not upset with Malaysian protectionist policies. They are quite used to it. Even in the supposedly free market US, imported pick-up trucks into America are slapped with a 25 percent duty levy.
In Japan, certain regulations are designed in such a way to give advantage to Japanese manufacturers. Japan’s JC-08 fuel economy test cycle is designed to favour Japanese engines. Something is clearly wrong when a hulking Toyota Alphard Hybrid qualifies for green tax rebate while a VW Golf TSI, one of the most fuel efficient cars in the world, doesn’t.
Until recently, South Korea subjected owners of foreign cars to income tax audits and specifies the maximum size of a foreign car showroom. Even duration of a TV commercial hours by foreign car companies are regulated.
Car companies are used to local idiosyncrasies and will adjust their plan accordingly. What annoy them most is not protectionism but flip-flop policies, which is akin to renegading on promises made. BMW Malaysia took NAP’s word that EU4M diesels will be introduced in 2011 and went ahead to launch four clean diesel models. To date, there is still no news of EU4M diesel.
The AP issue is another sore point. In 2006 government said APs will be abolished by 2010. This has since been pushed back to 2015.
The root of Malaysia's problem is firstly lack of political will and secondly, lack of clear direction. What’s the long term plan for Proton? So Perodua has a partnership with Daihatsu. What is supposed to come out of this? By when?
What is it that Daihatsu can do for us that requires us to cordon off a market for them, that we cannot achieve by opening up the market to more players? B-segment vehicles are seeing the most active innovations now. Ford Fiesta and VW Polo are the best examples.
Yet, Malaysians are denied access to affordable world class small cars because our policy is based upon throwing exclusive support to only one manufacturer.
When China was developing its auto industry, it cunningly pit all foreign car makers including VW, GM, Jeep, Daimler against each other to China’s advantage, dangling a 300,000 car a year manufacturing contract as the ultimate prize.
Of course, it would not be fair to compare against China. But the point here is that clearly we weren’t very good at negotiating for the long term and protecting our own interest. Until we set a clear direction and summon enough political will to push things through, our industry will continue to flounder and remain in a state of flux.
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28 Responses to “National Automotive Policy Review” Leave a reply ›
Very well analysed.
brilliant. i don't know why we voted for all those bozos who knew nothing about managing our economy
an excellent article; very well put and analyzed. two thumbs up
Well said, well said. Could someone send this to our Ministers.............
And yet....we keep voting for da same ppl over n over n over again
AP holder must be abolished
cool one
Please send this to NAP maker and relevant ministries.
Thumbs up for the very well written article.
Political will and protectionism aside, I want to add workforce to the equation. We can no longer rely on cheap labour in the manufacturing value chain. The higher value along the chain are in the design and R&D.
But are our workforces and education ready for that? We cannot even offer such workforce to entice the car manufacturers.
Perodua-Daihatsu's plan of building 4AT plant is a waste of money and showed that how perodua is falling further behind in the future auto's industry development. imagine that when the plant is operational in 2 yrs times, 4 speed E-AT will be a history and an obsolete transmission technology. By then, Japan will probably not produce any more 4s-E-AT. Maybe that is the reason why Daihatsu set up the plant here to support the spare part supply to all outdated Daihatsu-Perodua cars in ASEAN. Even Proton has leap-froged Perodua by adopting CVT in their cars.
Malaysia's NAP will not succeed, not now and not in the futue, as rightly pointed out above, due to lack of political will power, not to forget about the continued flip-flop decision making, corrupt practices of certain quarters and a severe lack of vision / foresight by the policy makers. If there is still no drastic changes, NAP is doomed.
It's interesting to see Asians becoming chief designers here and there..
Brilliant analysis! You can put even the one with the "name on the URL" blog to shame. Seriously speaking we Mysia cant go the paths of Indonesia and Thailand. Yes job opportunities are plenty but those were low paying jobs which were not feasible in the high cost of living back here. However despite the inperfections, Proton is way in a better shape compared a few years back and we can see the upcoming P3-21A will put some Japanese C segment cars to shame.
Since we already in the local car bandwagon, why U turn? We just hope Proton is competitive enough to survive the overseas market, in which they doing pretty ok in SEA countries.
Malaysians are indeed generally patient people. We have been hoping for almost 30 years, please dont ask us to give Proton another 30 years to succeed. Like this die la....
All the feature and technology in upcoming p3-21a is very common in Japanese cars. It is nothing to shout about.
Protectionism works if you beef up and prepare for the competition (case in point..Hyundai)...sadly, in our case..its made them more lembik..
nicely written..
I think our auto policies were drafted in the days when no one imagined that China would be the world's biggest car market or that Kia/Hyundai would be the world #3 or #4? So it's better for Malaysian policy makers to re-look all its policies related to autos. but when the policy makers lack the experience and the world view, i don't thnk it's possible. and we understand that the AP's will be extended to 2020. thanks for your enlightening article anyway
It's a shame that we are losing out to our neighbours in terms of being able to pull in well needed investments by larger, more established players in the world automotive markets, for the protection of our beloved Proton. At what expense,losing precious investments by a large margin to Thailand. We are being served sub standard cars not fully equipped with latest safety gadgets i.e. 4 airbags, abs,ebd, asr etc etc. Now with the tightening of the financing rules, manufacturers ,assemblers find it hard to sell new cars ,leaving a glut of unsold cars, why? Simply because we pay a ridiculous amount of money for a car,so ridiculous that the amount we pay for a Camry here in malaysia could buy us a F10 bmw in uk. All these because of protectionist measures to protect our national car whose made losses last year. Enough said on this subject. The politicians we voted into office needs to realise that this protectionist measures would bust our Automotive industry sooner than later . They got to make the decision to scrap all the protectionist measures and introduce regulations to ensure the car prices are realistic and the number of cars brought onto the roads equal those taken off the roads, this will ensure safe, reliable, economical cars replace rusted buckets of old inefficient technology is scrapped and taken off the road for everyone's sake. Also stop allowing importing used cars from Japan into our country since these cars were not designed for the poor and crappy quality of our fuels. In conclusion, there must be a political will to make sure our automotive sector is heading to a brighter future as opposed to the way of the dinosaurs, where it's heading now.
Fantastic write up!
Without VEL, it is almost impossible to implement and enforce advance safety standard. This is the reason why implementation of UNECE in Jan 2012 for VTA does not state the amendment level or version for each regulation adapted clearly to date. It will take the lawmaker ages before concluding and communicating the amendment levels due to this.
Brilliant research done!! The best article ever written in the decade, two thumbs up!!
Obviously unless it fills up their pocket, then we have no hope of affording to have the best technology advance car at the best price...... so we have to create a new post or ministry and allow them to a get rich quick scheme in order to move ahead in this sector, it might not be that bad an exchange considering the advancements to be had....
Tired of lame excuses for delaying AFTA.
Unrealistic taxes deprive us of top quality cars as the norm for all Malaysians.
Maybe we need a Thaksin mindset for our NAP for the good of Malaysians.
One other issue with why the NAPs have either not quite worked (or failed altogether) is a basic lack of understanding of the automotive industry on both a global and regional basis as well as a fundamental (and almost complete) ignorance of market dynamics on the part of the people drafting the NAPs. They got the numbers okay, but probably gave no consideration whatsoever as to what was behind them.
The market dynamics issue is perhaps the biggest, most important hurdle that the Government faced and, sadly, it can be argues that's an important keystone to the rest of the NAP. A good example of how delusional or ignorant of reality the NAP can be is shown in item 2 of table 4. The only countries where hybrid vehicle sales have reached the critical mass where they are self-sustaining on their own are California (not the entire USA) and Japan. And they got there without promoting infrastructure or subsidizing manufacturer research and development, but by promoting - and creating - demand. The pitiful numbers of what are effectively tax-free hybrids sold in Malaysia are moot testimony to the fact that customers have to see a benefit to pay for something.
While subsidised petrol is a factor (and a bloody big one) in Malaysia, it is not the sole reason that the demand's low. If someone buys a hybrid or EV in Japan or California, the BUYER, not the manufacturer gets the financial subsidy/incentive and the incentives include things like free parking and use of HOV (High Occupancy Vehicle - car pooling) lanes on California's congested freeways. This, in turn, generates the demand above and beyond the petrol cost issues (which are not as big as some think to people in California where considerably higher salaries and disposable income make petrol only marginally more expensive than Malaysia based on real buying power). In both California and Japan - where petrol is expensive by any measure - there are buyers who've purchased and lived with three generations of hybrid vehicles and like them. So much so that a study in California indicates that if the numerous incentives hybrid owners have were removed, more that 85 percent would continue to buy hybrids.
One other place where the Thais have outplayed the Malaysian NAPs is in terms of strategy. Whether anyone here would agree with it or not, the Thai focus was on job creation, and job creation independent of having a 'national' car. By-and-large, that seems to have worked out well for them. The Malaysian focus on a 'national' cars (later inexplicably doubled to two 'national' cars) was not a clever bit of strategy as regards increasing the the employment base since it included a set of barriers to potential rivals to the 'national' cars. After all nobody at the Dewan Rakyat wanted to see the investment in Ps 1 and 2 lost or otherwise endangered by, say, somebody like Volkswagen coming along and building and running their own plant somewhere outside JB. On the other hand the protection allowed P1 (and to a lesser degree P2) to develop a rudimentary development capability faster than the Thais could, so there may have been a certain logic to it.
But as things have ended up, the Toyota R&D presence in Thailand (which as the Toyota Australian R&D facilities as a subsidiary!) has now far eclipsed that of Proton as regards capability and economic return to the community. Yes, it took longer, but it was very much a tortoise and the hare event where Toyota Turtle won bigger, if not faster.
The protection of the 'national' carmakers has done them no real favours. While manufacturers in other developing and near-developed markets who were tied (rather than allied) to one of the world's big players had access to things now taken for granted like airbags, ABS, ASC and such in the parts bin because they were mandated in markets where P1 and P2 never play, those technologies could be adopted at a lower price since they would be purchased in the millions, not in lots of 100 to 500 merely to make it possible to export a few cars to the UK or Australia.
All of that protection that the government lavished on the 'nationals' was making them less competitive in export as regards content AND pricing. P1's export efforts have been money losers for years because the Saga that sells in Malaysia for RM35K against a protected MyVi in export has to go up against, say, A mid-spec Vios in Thailand (for example) where the Vios costs the same or is CHEAPER. Oh, and that's a Vios with ABS and airbags. Since the Vios is not a rival to the Saga here, the marketing and sales people who call the shots as regards content and such ignore it. To the peril of the people in charge of exports.
The lack of cost competitiveness is not wholly the creation of the 'national' carmakers. In fact their part is probably a minority interest. The larger cost issues come from the local component supplier base which is a lot farther from being globally (or even regionally) competitive than Thailand's is. Given the fact that carmakers only produce about 1/3 to (rarely) 1/2 of the car, this is a VERY big issue with some VERY small parts and VERY small suppliers. The 'one million a year' number that Hans refers to in the article also applies to component suppliers, admittedly at a lower number. But the far-too-cosy relationship that's developed between the 'national' car makers and the local supplier network from a near-stagnant (or perhaps very slow growth rate from the supplier's point-of-view) market over the past two decades has left P1 and P2 dependent upon a wholly non-competitive supplier base. this has had tragic consequences to the two carmakers relative to what they might have been. As the manufacturers grew, the suppliers tended to stay the same size, not wanting to invest the capital to produce more. That initially wasn't an issue since a new supplier could be started. All-too-often one with little, if any, ability in the area of expertise needed to have basic competence developing and producing the required component.
Just as a reminder (not that a lot of us need it), most of P1's power window issues came from a supplier that started out making (manually adjustable) side-view mirrors and radio aerials. They had no experience in power window design, development and production. Rather than say "those damned people at Reput Kubis Sdn Bhd made a crappy power window", customers complained "those damned people at Proton made a crappy power window". Well, they didn't. But to the customer, that doesn't matter. It was in their Proton.
There is a whole lot more I'd love to say, but it's late and I am falling asleep. In any case this is a great article and one which may - hopefully - cause some people to wake up and smell the Nescafé Tarik.
Selamat malam, I'm off like a bride's nightie.
I'd buy NST to see an article written by Hans Cheong AND Matthew Selligh. IMHO, together they could probably write up a better NAP 2012 than the NAP 2006+2009. What do you say, gentlemen?
My salute to Hans Cheong and Matthew Seligh.
I wish to add that the biggest winner of the NAP is the bankers who finance the car purchase. Every car buyer who buys a car via hire-purchase financing scheme actually borrow money to pay for the tax. While the govt collects the tax only once, the bankers collect interest payment many times over; from the first buyer thru the subsequent ones until the car is sent to the junk yard. the imposed tax has become a portion of the market value of the car. The hire purchase scheme locks in the full amount of this tax portion of the market value of the time the car changes hands.
NAP is not beneficial to car purchasers. Period.
Start first but finish last.
This is such an Excellent write-up.
Almost 30 years ago, i was so proud when my NATIONAL car was first produced.
Today, ask anyone on the street; "How do you feel about your national car maker Proton?"
You will be glad if the person doesn't spit in front of you.
From pride, it turns to SHAME.
There is no more reason to have a national car.
I enjoyed the article. Made a good well thought out argument for a more open Automotive segment.
The replies were also good. Not always the case!
Keep it up.
Cheers to one of the best and unbiased articles regarding the NAP in a long while.