37 years after Malaysia started developing its first and second national car – Proton and Perodua – and a year after Malaysian-owned company DRB-HICOM sold off Proton to Chinese manufacturing giant Geely, Prime Minister Tun Dr. Mahathir now has plans to start reviving a third national car.

At the 24th Nikkei Conference on the Future of Asia 2018, Dr Mahathir revealed the Government’s plans to work on a new national car. This drew widespread criticism and protests from the Malaysian public; from professional analysts to casual Facebook users to politicians; who disagreed with the timing of the plans. Even former Youth Minister Khairy Jamaluddin commented that “The new national car project is regressive, backward”.

A key criticism raised included the need for the government to fully refine and innovate our already successful product line, Perodua, which dominated passenger car sales in Malaysia by 39.8% in 2017. Others argued that having a national car wasn’t necessary to develop our nation at all. Take Thailand for example – they own the largest automotive industry in Southeast Asia despite not having a national car by attracting foreign automotive players with tax and land incentives. A wholly-owned national car isn’t the only way for Malaysia to move forward towards becoming a developed nation – there are better, more feasible alternatives to explore.

But how much truth lies in their objections? Here’s a brief analysis of the main underlying aspects.

The Government’s Stance

  1. Increasing the nation’s engineering capacity

In an interview with Malaysiakini, Dr Mahathir stated that the goal has always been to increase the engineering capacity of the country and turn Malaysia into a country of producers instead of consumers.

In a sense, it would not be wrong to think of the national car project as a way to modernise and keep up with the Fourth Industrial Revolution. In the past, our partnership with Mitsubishi Corp enshrined us with the knowledge to build a car from scratch. In the future, partnerships with electric vehicle companies could allow us to reshape the future of transportation in Malaysia, hopefully creating a skilled and dynamic automotive workforce that is equipped with both experience and technical knowledge.

  1. Opening up new opportunities

The implementation of a new national car project could open up avenues for Malaysia to pursue advanced manufacturing, technology and other associated economic activities to the country. Looking back at the first national car project Proton, the local car industry did end up with the required expertise to independently assemble its own car from scratch (despite being behind in terms of research and development of cars that lead to poor performance in its later years). With proper planning and implementation, Malaysia can potentially tap into a new generation of automobiles – specifically electric vehicles.

  1. Continue to bolster the economy

The automotive industry can be hugely impactful to a country’s economy. The supply chain for car parts and accessories in car productions creates tons of job opportunities, therefore producing a multiplier effect on the economy. In 2017, a little over two million people were employed by enterprises in the automotive dealer industry in the United States while the Malaysia automotive industry employed around 736,632 workers, totalling 4.8% of Malaysia’s total workforce. Besides that, the automotive industry has also contributed to 4% of Malaysia GDP in December 2017 and is projected to grow in the future with good policies, and possibly with a third national car project.

Dilemma #1: Barriers to Entry

The automobile industry is not an easy industry to enter. There are several reasons for this, all of which are tied to the high barriers to entry (essentially, obstacles that make entering a market difficult and restricts competition).

One of said barriers is the extremely high capital needed. From purchasing physical manufacturing plants, raw materials, to other costs such as R&D and marketing costs, these are all hefty prices that leaves a car manufacturer with slim profit margins in the end. Judging from 2016, where the top 10 OEMs in the automotive industry returned only an anaemic 4 percent return on capital, the question lies whether a venture with weak prospects is worth the high investment.

Another major deterrent would be the nature of the industry itself that requires economies of scale. For a manufactured car to be able to compete cost-wise, manufacturing companies must have the ability to mass-produce to spread out and apportion the cost to more units to lower cost per unit and maximise the profit margins gained from sales – a simple yet game-changing concept in all industries.

Therefore, to achieve economies of scale, the project can either aim to penetrate a new niche market or rely on protectionism policies to provide the market share needed by shutting out foreign competition.

Dilemma #2: Protectionism Policies

Malaysia is long known for its policies set up to regulate the import of foreign cars. These kinds of protectionism policies are against the global policy of promoting free trade. Without competition, any industry will have no incentive to increase efficiency and maintain quality which is the major drive of one’s success.

Existence of such protectionism policies result in the lacklustre will to improve its image and quality, killing off innovation and delay the development of products. Looking back again at the dark history of Proton, its models have remained nearly identical for many years after its initial stages of success, proving the lack of incentive to develop and refine the national car.

Besides stagnating growth, protectionism policies also limit consumer power. Through imposing high duties on imported cars, which is around 40% pre-AFTA, although the tax revenue collected by the government will increase, prices of imported cars will in turn skyrocket, reason being the extra taxes are in fact passed down to the final consumers, us.

The result? Consumers are left with the option of either paying a lot more for a product (which would have cost a lot less in another country), or buying the cheaper, local national car (whose models are aggravatingly underdeveloped and unchanged).

Bearing that in mind, protectionism policies were implemented with the need for providing breathing room for infant companies to grow in mind. Hence, the word “protectionism” should have a strategic time frame if it seeks to truly reform the country.

The Way Forward

As mentioned, feasible options moving the project forward would require adequate and not timeless protectionism policies, as well as a new target market. In light of this, a bright prospect for our national car would be for it to be a purely electric-vehicle (EV) initiative.

The basis of this statement lies in the EV market in Malaysia which still in its infancy. Yes, other car manufacturing companies have rolled out hybrid and EV models but nowhere near dominating the automotive industry as of now. The world is only at the starting line of adoption, with battery electric vehicles (BEV) making up less than 1% of new car sales globally hence the opportunity to enter the market at an early stage.

Currently, Malaysia is already on the right track to capitalise on this paradigm shift in automotive technology. For starters, GreenTech Malaysia has formed a special purpose vehicle with Tenaga Nasional Bhd (TNB) to invest and construct EV charging stations nationwide. Currently, there are 234 charging stations, with some 150 are stationed in the Klang Valley region and in the next 5-10 years the joint venture aims to construct up to 10,000 charging stations nationwide. The charging stations will fulfil the role of gas stations and spurring Malaysians to take the switch to EVs.

Under the National Electric Mobility Blueprint (EMB), Malaysia aspires to become the marketing hub for EVs by 2030. The blueprint targets 100,000 electric cars, 125,000 charging stations, 2,000 buses and 100,000 motorcycles on the road by 2030, which will greatly reduce carbon dioxide emissions; keeping Malaysia firmly on track to achieve their target in the Paris Agreement.

With these policies and initiatives already in place, it creates the perfect environment with reduced competition for our national car project to enter this niche market in Malaysia early on.

Conclusion

Despite the flaws and challenges raised, a more dynamic automotive cluster would still be a viable option for Malaysia – but only if a feasible plan is devised and not disguised as “industrial nationalism”. National car to be or not to be – relies on a proper game plan, and not simply a support of Malaysian nationalism and so-called Asian values.

 

References

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Prepared by:

Researcher – Vincent Lye Ming Han, Piong Chyi Wei

Editor – Luanne Lai, Vikky Beh Wei Chi

 

Download the article here:   The-National-Car.pdf