Revised National Automotive Policy (NAP) seeks to further liberalise the auto sector

The much awaited revised NAP that was unveiled by the Minister of International Trade and Industry (Miti) Datuk Seri Mustapha Mohamed on Monday Jan 21 has a 5 year plan until 2018 to reduce car prices.

However, the targeted lower prices of cars by at least 20% to 30% would not be brought about by lower excise duties but by further liberalisation of the auto sector .

“Liberalisation creates a more competitive environment that would enable greater market forces that lead to more competitive prices,” said Mustapha.

The main thrust of the revised NAP is to make Malaysia the regional automotive hub for the production of Energy Efficient Vehicles (EEV).

The government hopes to issue three to four manufacturing licenses for EEV until 2018. In an effort to boost the funding for the production of EEV’s, the government would provide funding of RM2.07 billion over seven years to attract domestic and foreign investments into the segment.

The revised NAP states RM765 million soft loans for the development of tools, dies and moulds, RM575 million for component technology pre- commercialisation and RM295 million for enhancing competitiveness of the EEV’s.

In an effort to boost the attractiveness of Malaysia as a regional hub for the production of EEV’s, Mustapha said that there will be no preconditions to the award of the manufacturing licenses.

In a move to spur local production of EEV’s, the government has decided to abolish the excise duty and import tax exemptions for hybrid and electric vehicles. However locally assembled hybrid cars will enjoy the exemption until Dec 31, 2015 and local electrical car will be exempted until Dec 31, 2017. The rationale for this move is that imported cars do not contribute significantly to the Malaysian economy.

Mustapha also said that a review of the current excise duty structure will only be undertaken once the fiscal situation of the country improves.

The revised NAP also targeted the creation of an additional 70,000 manufacturing jobs and 80,000 additional after market jobs by the year 2020.

The Total Industry Volume (TIV) expected in 2020 is 1.25 million units with 250,000 export units. In 2013, the TIV was 570,000 units with 20,000 units exported.

Another area included in the revised NAP, was the voluntary vehicle inspection policy. Currently, the service is monopolised by Puspakom, a subsidiary of conglomerate DRB- Hicom Bhd with 55 service centres throughout the country. It is anticipated that the ideal number of service centres in the country would be 300 and the provision of the service would be open to more than one company.

The controversy ridden Approved Pemits (AP) which was earlier given a 2015 timeline to be withdrawn has been given a temporary reprieve. In the revised NAP, the government said that it would study the system in depth before deciding on continuing it beyond 2015.

The system which is linked to the Bumiputera participation in the automotive industry had received a lot of criticism as it was perceived to enrich certain well placed personalities.

Meanwhile, Bank Islam Securities, said it maintained its ‘Neutral’ stance on the auto sector as the revised NAP is seen to benefit global marques looking to expand or using Malaysia as a hub for its EEV production.

It said the main risk to the auto sector remains higher financing cost from a potential OPR (Overnight Policy Rate) hike in the second half of 2014. It remains ‘Neutral’ on Tan Chong, UMW Holdings and MBM Resources.