Malaysian Government May Consider Restriction on Foreign Cars

Automologist ATHERTON thinks this would be a BAD move. 

The Malaysian government may consider restricting the number of cars allowed into the country, according to Malaysian Prime Minister, Tun Mahathir Mohamad.

“All the countries which produce motor vehicles have got restrictions, either on standards or because of taxes…so we need to protect our infant industry,” he said.

“Our country allows any imports of foreign (car) brands, but when we want to export our cars, there are many criteria that we need to fulfil, like the Euro Five standard in Europe, and some even make us subject to their agriculture tax. This government will help Proton and the industry,” he added.

Malaysian Prime Minister Tun Mahathir considers restricting the number foreign cars in the country.

The move seems to be a regressive one, which could impact the industry as a whole, and I concur with Malaysian Automotive Association’s (MAA) president, Datuk Aishah Ahmad, on this as it could stifle growth not only for the foreign car companies, but the local players as well.

Why? Well, it could stifle creativity in creating new products; it could stifle progress when everyone just follows orders without looking into doing what’s best for the customer and the brand.

It could also create another monster with a prevailing lackadaisical attitude—if there is no competition, one would not be obliged to think out of the box or find solutions that would grow the product, in terms of reach or technological advancement or standard of quality.

Datuk Aishah also mentioned to the media that many so-called foreign car companies, such as Honda, have as much as 70 to 80% of local content, and said that “they cannot be considered as foreign cars”.

She also commented that the creation of the New Automotive Policy (NAP) was the way forward. The NAP returned incentives back to manufacturers, ie. global brands such as Honda, Toyota, Nissan, and Mazda. These automakers all operate large assembly plants here in Malaysia, and have high incentive-returning local content and cannot be considered as foreign cars.

Datuk Aishah Ahmad, President of Malaysian Automotive Association (MAA) says the move seems to be a regressive one.

“Regardless of brands and their origins, a car is considered local if it is assembled in the country”, she said.

The creation of NAP has also led to the development of better export programmes by non-national brands. Volvo Car Malaysia exports various models made in Shah Alam to Thailand, while BMW Malaysia has plans to export its products to Vietnam and the Philippines this year. Bermaz Auto, meanwhile, generates good revenue from exporting its popular Mazda CX-5 to the ASEAN region.

“Most foreign car brands have factories in Malaysia, providing jobs for about 710,000 workers (in the ecosystem including vendors), so what they did was similar to Proton and Perodua,” she said.

She said that by providing a level playing field, Malaysia will be in the right direction to replicate the success stories seen in Thailand and Indonesia, which have more developed automotive markets and strong export strategies catering to global demands.

“Thailand is exporting 1.3 million cars and Indonesia is supplying more than 100,000 cars to the global market. Ever since the government created Proton in 1983, the country’s car exports have been at a mere 20,000 units to 30,000 units, which are much less than our neighbouring markets,” she added.

By setting these restrictions, the goal of automotive market liberalisation, which is a policy designed to allow firms to compete on a level playing field, is seen to be flying out the window.

The Malaysian government, however, stated that the previous ruling party made it ‘too open’ when it came to allowing foreign cars into the country. In the short-term, protectionism could work in the country’s favour but in the long-run, it would be detrimental. It makes the country and its industries—such as the automotive sector—less competitive in international trade.

“The best way to tackle the liberalisation of trade is open competition. Companies need to hone technology through competition” – Soichiro Honda. Image credit – Pinterest

There is a quote by Walter Block about protectionism (even though his surname means just that, he embraces free trade). Here it goes:

“The only people protected by tariffs, quotas and restrictions are those engaged in uneconomic and wasteful activity. Free trade is the only philosophy compatible with international peace and prosperity.” 

And to quote Soichiro Honda, who had his own battles with Japan’s Ministry of International Trade & Industry’s protectionist trade policies:

“Japanese motorcycles were able to conquer the world market mainly because industry was not protected by the government. If the government steps in with some kind of far-reaching industrial policy to profit corporations, it is going to have the exact opposite effect. The best way to tackle the liberalisation of trade is open competition. The auto industry has been crippled ever since the end of the war and why? Because of government restrictions on importing foreign cars. Companies need to hone technology through competition.”

If the idea is to help Proton, then it begs the question of how Perodua can sell so well in Malaysia compared to Proton? Both are competing in the same market, both have cars that compete directly in certain segments, both have vast dealers network and both companies are open to challenges from other automakers. But why does one triumph over the other?

The other question is: Would Malaysia still go ahead with protecting the local players or would the country be willing to take challenges head-on by working with local players and stepping up to the game, and winning on merit?

Tell us what you think.