MALAYSIA'S AUTOMOBILE PROGRAMS

UNCLAS KUALA LUMPUR 000232 SIPDIS DEPT FOR EB/TPP/MTAA B Nafziger DEPT PASS USTR D Bell GENEVA FOR USTR E.O. 12958: N/A TAGS: ECON ETRD EINV EFIN PREL WTO MY SUBJECT: MALAYSIA'S AUTOMOBILE PROGRAMS REF: State 4753 ¶1. (U) Summary: Malaysia's second fiscal stimulus package includes incentives for Malaysians to trade in their old Proton or Perodua brand vehicles for new ones. Up to 4.8 million owners of Proton or Perodua vehicles that are more than ten years old might be eligible for this program. The stimulus package also sets aside USD56 million for Malaysia's Automotive Development Fund. Malaysia's National Auto Policy (NAP),in effect since 2005, is designed to both increase foreign investment and strengthen the national automakers. The Approved Permit (AP) system restricts the right to import foreign cars to government approved import permit holders, thus increasing prices of imported cars. End Summary. Subsidy for Malaysian Manufacturers -------------- ¶2. (U) Malaysia's second fiscal stimulus package, announced on March 10, includes a special subsidy that encourages Malaysians to turn in over ten year old Malaysian brand (Proton or Perodua) vehicles for new ones. Under the scheme, car buyers will receive a subsidiary of USD 1,400 if they turn in the old vehicle to the Malaysian manufacturer and purchase a new one from them. Half of the subsidiary comes from the government, and the other half from the Malaysian auto makers. Only cars made by the two Malaysian manufacturers, Proton and Perodua, are eligible for the program, i.e. imported cars or other cars assembled in Malaysia are not eligible. ¶3. (U) Perodua managing director Hafiz Bakar estimated in a media interview that there are approximately 4.8 million Malaysian brand cars that are over ten years old on the road. Proton chairman Nadzmi Salleh praised the proposal as helping the industry which employs almost 200,000 people in Malaysia. ¶4. (U) The Malaysian Automotive Association (MAA) objected to the scheme because it is limited to the two largest national car manufacturers only. MAA appealed to the Finance Minister for the scheme to be extended to all locally assembled or manufactured vehicles. Automotive Development Fund -------------- ¶5. (U) The fiscal stimulus package also sets aside USD56 million for Malaysia's Automotive Development Fund. The purpose of the fund is to support the development of Malaysian auto manufacturers and auto dealers. National Auto Policy -------------- ¶6. (U) Malaysia's National Auto Policy (NAP) has been in effect since 2005. The NAP framework is intended to encourage increased foreign investment in Malaysia's auto sector, while simultaneously strengthening national carmakers Proton and Perodua. ¶7. (U) The NAP Framework's five major objectives are: "-- to promote a competitive and viable automobile sector, in particular national car manufacturers; -- to become a regional hub for manufacturing, assembly and distribution for automotive vehicles; -- to enhance value added and local capabilities in the automotive sector; -- to promote export-oriented Malaysian manufacturers as well as component and parts vendors; -- to promote competitive and broad-based Bumiputera participation in vehicle manufacturing, distribution and importation as well as in component and parts manufacturing." Approved Permits - More for the Middleman -------------- ¶8. (U) Malaysia's Approved Permit (AP) process, which restricts importing cars to government approved permit holders, is intended to favor Bumiputera (ethnic Malay's and native tribes) by enabling Bumiputera to set up automobile sales and service operations. Instead, the AP process has become a lucrative "middle man" operation, where many AP holders sell their permits to non-Malays and keep the cash. This adds thousands of dollars to the retail cost of imported cars. ¶9. (U) While the NAP proposed elimination of APs in the long term, the GOM announced in January 2009 that they intend to extend the AP process probably for the next five years. (Note: According to MITI officials, permits were withdrawn from holders that re-sold the permits to non-Bumiputera companies or individuals. End Note.) KEITH