Business Opportunities - .: MIDA

1 Business OpportunitiesM A L A Y S I A SAutomotiveI n d u s t r y1 Automotive IndustryCentrally located in the ASEAN region with apopulation of more than 500 millionpeople, Malaysia offers vast opportunitiesfor global automotive and componentmanufacturers to set up manufacturing anddistribution operations in the country. Pragmaticgovernment policies, political and economicstability, sound economic fundamentals, well-developed infrastructural facilities and aneducated and skilled labour force have attractedmajor international automotive and componentmanufacturers to invest in rapid growth of the economy and the highpurchasing power of its population have madeMalaysia the largest passenger car market inASEAN. At the same time, the establishment ofnational car projects, PROTON and PERODUA,has transformed Malaysia from a mere motor carassembler into a car manufacturer. The industryhas boosted the development of engineering,auxiliary and supporting industries and contributedto skills development and the upgrading oftechnological and engineering capabilities.

2 Thesefactors have further enhanced the attractivenessof Malaysia as a base for global automotivemanufacturers. With a ratio of 200 cars for every one thousandpeople, Malaysia ranks among countries with highcar ownership ratio in the region. Toyota, Honda,Nissan, Mercedes Benz, Volvo, BMW, Peugeotand Volkswagen are some of the globalautomotive companies which have set upoperations in Malaysia to take advantage of thebuoyant consumer demand. Internationalcomponent manufacturers, such as TRW, Delphi,Continental, Nippon Wiper Blade, Denso andBosch have also made Malaysia their base tolaunch their products in the Gateway to the ASEAN Automotive Market Reaching New HeightsCurrently, there are 28 manufacturing andassembly plants producing passenger andcommercial vehicles, composite body sportscars as well as motorcycles and plants have a total installed capacity ofapproximately 963,300 passenger andcommercial vehicles and about 1 millionmotorcycles per year, with production cateringprimarily for the domestic automobile market has reboundedimpressively from the effects of the Asian financial crisis of the vehicle sales reached an all-time high of 605,156 units in 2010,surpassing the previous highs of 548,115 units in 2008 and 536,905units in 2009.

3 Total vehicle sales in 2011 were 600,123 , Malaysia has made significant progress, with Protonunveiling its first locally-designed model i n 2000 and developing itsown engine in 2002. The new PROTON plant in Tanjung Malim ishighly automated, employing robotic technology, and is designed forhigh volume production and efficiency, using lean Industry2008548,115530,8102007487,176447 ,536536,905497,5622009605,156567,7152010 600,123533,5156002011 Malaysia - Production and Sales ofPassenger and Commercial VehiclesExpanding Global NetworkObjectivesThe overall objective of the National AutomotivePolicy (NAP) is to generate sustainable economicvalue creation. This will maximise the long termcontribution of the automotive industry to thenational economy and at the same time ultimatelybenefit the Malaysian consumer. The NAPtherefore aims to facilitate the requiredtransformation and optimal integration of thenational industry into regional and global industrynetworks.

4 Consequently, the Government has setout the following objectives for the nationalautomotive sector: To promote a competitive and viable domesticautomotive sector, in particular the national carmanufacturers To promote Malaysia as an automotive regionalhub, focusing on niche are as To promote a sustainable level of economicvalue added and enhance domestic capabilities To promote a higher level of exports of vehiclesas well as components and parts that arecompetitive in the global markets To promote competitive and broad-basedBumiputera participation in the domesticautomotive sector To safeguard the interests of consumers interms of value for money, safety and quality ofproducts and achieve the objectives of the NAP, theGovernment will: provide a comprehensive package of grants andincentives to support the development of thedomestic automotive sector; encourage rationalisation of the automotivesector to create a leaner and more sustainableindustry structure; encourage industry players to collaborate withexternal parties to establish stategic tie-ups; e ncourage existing industry players to deepentheir commitment in measures to be undertaken by theGovernment will open up more investmentopportunities for new and existing Automotive PolicySource: Statistic Department3 Automotive IndustryReview of NationalAutomotive PolicyIn October 2009, the Government reviewed theNational Automotive Policy (NAP) with theobjectives of:- ensuring orderly development as well as longterm competitiveness and capability of thedomestic automotive industry as a result ofmarket liberalization; creating a conducive environment to attractnew investment and expand existingopportunities.

5 Enhancing the competitiveness of thenational car manufacturer through strategicpartnership; fostering the development of the latest, moresophisticated technology in the domesticautomotive industry; developing high value-added manufacturingactivities in niche areas; enhancing Bumiputera participation in thedomestic automotive industry; improving safety standards for consumersand promoting environment- friendlyopportunities; and enhancing the implementation of current NAP s policy Measures in theNAP Review (Effectivefrom 1 January 2010) The freeze in issuance of new manufacturinglicences will be lifted for selected segmentsnamely:- luxury passenger vehicles engine capacity of1,800 and above and on the road price not less than RM150,000;- hybrid and electric vehicles;- pickup trucks;- commercial vehicles; and- motorcycles with engine capacity of 200 and above The tax exemption on statutory income formanufacturers in the automotive industry isenhanced:- from 10 to 30 per cent of the value of increased exports provided the vehicles and parts/components attain at least 30 percent value added; and- from 15 to 50 per cent of the value of increased exports provided that the goods attain at least 50 per cent value added.

6 Import duty removal/reduction of import dutyin compliance with trade agreements. The import and excise duty rates for completebuilt-up (CBU) and complete knocked down(CKD) are Industry The Government will establish gazetted price ofimported used CBU motor vehicles in order toaddress under declaration. Companies manufacturing transmission systems,brake systems, airbag systems and steeringsystems (critical and high value added parts andcomponents) are eligible for better fiscalincentives. Investments in assembly or manufacture ofhybrid and electric vehicles will be granted:-- 100 percent Investment Tax Allowance (ITA) or Pioneer Status (PS) for 10 Customised training and R&D 1 00 percent exemption on excise duty (for locally assembled/manufactured vehicles or provision of grant under Industrial Adjustment Fund (IAF)).- 100 percent PS for 10 years or 100 percent ITAfor 5 years for manufacture of selected critical components supporting hybrid a nd electric incentives will be considered based on proposed The Ministry of Energy, Green Technology and Water will draw up a roadmap to develop the infrastructure for electric vehicles.

7 Continuation of the Automotive DevelopmentFund (ADF) and Industrial Adjustment Fund (IAF)to improve competitiveness of parts andcomponents manufacturers. The Ministry of Transport ( MOT) will accordpriority in the 10th Malaysia Plan for fullestablishment of the Vehicle Type Approval (VTA)standards and testing facilities. The Ministry of Science, Technology andInnovation will coordinate and formulate aroadmap for the introduction and enforcementof mandatory standards for automotiveproducts. The Government will introduce a mechanism toprohibit imports of used parts and components,effective from June 2011. Imports of used commercial vehicles will beprohibited, effective from 1 January 2016 in linewith the gradual phase-out of imports of usedparts/components; and the termination ofApproved Permit (AP) system for used vehicles. The Government has now set a clear target ofimplementing EURO 4M specification for petroland diesel by 2011 and the Ministry of NaturalResouces and Environment will establish aroadmap for fuel standards and quality.

8 The Approved Permit System where the OpenAP system will be terminated by 31 December2015, while Franchise AP will be phased out by31 December 2020. Effective from 1 January 2010, a charge of RM10,000 for each unit of open AP issued will beimposed and the collection will be used toestablish a Bumiputera Automotive Fund toassist B umiputera companies venturing into theautomotive and other businesses. A strategic partnership for Proton and globallyestablished original equipment manufacturer(OEM) will be established to enhance Proton scompetitiveness in a global market and its longterm viability. The freeze on manufacturing license forreconditioning and reassembling (rebuilt)activities is Opportunitiesunder the ASEAN FreeTrade AreaIn line with Malaysia s commitment under AFTAand to encourage competitiveness in theautomotive industry, import duties on CKD andCBU vehicles from ASEAN countries have beenreduced to 0%.

9 For vehicles from non-ASEAN countries, the import duties on CKD vehicles havebeen reduced to 10% while import duties on CBUvehicles were reduced to 30%. To maintaingovernment revenue, excise duties are imposedon all vehicles, both locally manufactured/assembled and imported. The import and exciseduties imposed are as follows:Imports from ASEAN countriesImport Duties Excise DutiesCKD vehicles0%60 - 105%CBU vehicles0%60 - 105%CKD motorcycles0%20 - 30%CBU motorcycles0%20 - 30%Imports from non-ASEAN countriesImport Duties Excise DutiesCKD vehicles10%60 - 105%CBU vehicles30%60 - 105%CKD motorcycles0-10%20 - 30%CBU motorcycles30%20 - 30%Source: Malaysian Automotive Association (MAA)Trade liberalisation within ASEAN has opened up avast regional market, providing export opportunitiesfor automotive and component manufacturingcompanies. Carmakers will also be able to sourcecost-competitive components from ASEAN countriesand benefit from potential economies of elimination/reduction of tariffs on motor v ehiclesby the Malaysian government, levelled the playingfield for all automotive industry participants.

10 This isclearly an important step undertaken by thegovernment towards trade liberalisation. While Malaysia has no commitment to reducingimport duty for vehicles imported from non-ASEAN countries, in order to be equitable, the Governmenthas also reviewed the import duty structure onvehicles that a re imported from Growing ComponentsSectorThe development of Malaysia s automotive industryhas made the country a production centre for majorautomotive component manufacturers. Today, thereare more than 800 automotive componentmanufacturers, producing a wide range ofcomponents, such as body panels, brake parts,engine parts, transmission and steering parts, rubberparts and electrical and electronic parts. In 2011,the sub-sector generated sales of RM billion,while imports amounted to RM billion andexports RM Motor Vehicle Sales in the 4 Major ASEAN Countries5 Automotive Industry2008132,444536,905483,548771,500 703,432530,267551,045682,161318,68891,06 399,430490,768631,251433,341117,903487,1 76615,270603,774124,449548,115548,871794 , 081894,164141,616600,123755,000600,50016 9,0002007200920102011900,000800,000700,0 00600,000500,000400,000300,000200,000100 ,000 Among the major componentmanufacturers are foreignmultinationals, such as DelphiAutomotive Systems, TRW, ZF,Bosch and Nippon Wiper Bladewhile local companies includeAPM Automotive, Sapura,Delloyd and addition to supplying to thelocal original equipment market,an increasing number ofcomponent manufacturers areexporting their products.