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