Government needs to stop flip-flopping on auto industry policy

Hans · Oct 21, 2019 08:24 AM

From fuel standards to Approved Permits to tax structures, the last 18 months have been marked by a lot of uncertainties in the Malaysian automotive industry.

Last October, the government announced that it is backtracking on its commitment to roll out lower sulphur Euro 4M standard RON 95 petrol by 14 months, from 1-October 2018 to 1-January 2020.

The Ministry Domestic Trade and Consumer Affairs nonchalantly announced the postponement only on 5-October 2018, saying that the delay was due to the inability of petroleum companies to ensure sufficient supply of Euro 4M RON 95 petrol to the market.

The question is, did the country’s fuel supply chain only realized that it can’t meet the deadline on the final month?

Then there was the tragic-comedic U-turn made by the Ministry of International Trade and Industry (MITI) regarding the Approved Permits for imported vehicles.

The original 2006 National Automotive Policy clearly stated that APs for imported cars will be phased out by 2010.

That commitment was later backtracked, but the 2009 National Automotive Policy reiterated that Open APs used for reconditioned vehicles will be removed by 31-December 2015, while Franchised APs used for vehicles imported via official channels will be removed by 31-December 2020.

On March 2019, MITI made an dramatic U-turn and announced that the issuance of Open APs is now unlimited, although audits will be stepped up to monitor against abuse.

MITI Deputy Minister Ong Kian Ming insists that Open APs have little or no impact on investments in the automotive sector, because according to him, APs are used for low volume cars like Ferraris, and it doesn’t affect premium brands like Mercedes-Benz or BMW, who are already doing local assembly here.

According to MITI, Open APs are used to import low volume reconditioned cars, models like Ferraris, which won't be assembled here.

It’s a government policy equivalent a World Rally Championship driver making a handbrake turn. 

If Open APs have no negative impact on the industry then why was it mentioned in not one but two National Automotive Policies - 2006 and 2009? The objective of these two NAPs were to reform and accelerate growth in the local automotive industry.

Not only that, pressure from the then opposition parties, which were heavily criticizing Open APs, was the original impetus on why NAP 2006 and 2009 sought the remove the archaic policy.

For the record, imports of reconditioned cars are not unique to Malaysia. Singapore and China for example, encourages it to promote competition, but they do it with one very important difference – a level playing field.

There, parallel imported vehicles are required to submit the same set of exhaust emissions certification and Vehicle Type Approval papers, and are taxed according to the same open market values as official channel cars. As such, manufacturers have no complaints about it.

Then there was the Energy Efficient Vehicle (EEV) incentives outlined under the 2014 National Automotive Policy, which promises lower excise duties for locally-assembled low fuel consumption (by weight category) cars.

For a while, Malaysia was BMW’s top-5 markets worldwide for plug-in hybrid models.

We also became the first (and only) country apart from Japan to produce sub-compact Honda hybrid vehicles (City Hybrid, Jazz Hybrid, HR-V Hybrid).

The government says EEV will remain but won’t give assurances on how long will the incentives remain. Some stakeholders say EEV incentives need to be re-applied/renewed every year and manufacturers can’t work with just a one-year time frame.  

Nothing has been confirmed yet - which is a problem itself as the new National Automotive Policy was supposed to be announced last year.

As such, most manufacturers have dropped their plans to locally-assemble hybrid vehicles. Mercedes-Benz Malaysia for example, no longer makes the C350e and E350e while Toyota has discontinued the Toyota Camry Hybrid.

For a brief period of time, we were leaping ahead Thailand in engine electrification – which is a general trend of the world’s automotive industry anyway.

Mercedes-Benz have confirmed that the fully electric EQC will be produced in Thailand, where it has also opened a battery plant.

The keyword here is for a brief period, because Indonesia and Thailand have since leapfrogged us as investments have poured to those two countries following their respective government’s announcement on policies to promote electrified vehicles.

Thailand ability to attract investments defies common logic because the country has seen 3 military coups in the last 25 years but its auto sector continues to see ever increasing investments.

Despite the frequent changes in government, Thailand’s civil service rarely change their policies. As such, investors are confident that short-term upheavals in the country’s political scene have little long-term impact on their businesses. They are confident that whatever has been announced, will be carried out even if there is a change in government.

At the sidelines of the launch of the new Mercedes-AMG GT C and GT R, I sat down with Michael Jopp, Mercedes-Benz’s newly appointed Vice-President for Sales and Marketing for Malaysia and South East Asia region II.

Jopp has spent more than 20 years in Daimler and previously held a similar position in Mercedes-Benz India.

I asked him what his wish list for Malaysia’s automotive policy was. Surprisingly, he said nothing about lower taxes - a touchy point for any new face foreigner trying to understand our market. 

“Automotive development is about huge investments and long-term investments. For us, it is most important to have policy stability and long-term stability so that we can plan accordingly, because we need to plan and we cannot change our [product] portfolio overnight.

“We have a big portfolio to pick – models for our market – but even that requires adaptation, investments, local manufacturing, which cannot happen overnight. Many product decisions that we are taking today can only materialize three or four years down the line, and obviously they are based on an expectation on how the policy will evolve. That kind of stability is most important,” said Jopp.

When asked about MBM’s minimum expected time frame for policy planning, Jopp answered “Five years vision/stability will be beneficial.”

“It benefits the country, it benefits the customers, because then we are able to shape our portfolio and come up with the best possible fit of products.”

Jopp also mentioned that the lower standards for fuel quality in Malaysia is a concern because as the industry trends towards greener engines, these new generation of engines need higher quality fuels.

Mercedes-Benz Malaysia is one of the biggest investors in the Malaysian automotive industry. It assembles more than 10 models at its vehicle assembly facility in Pekan - C200, C300, C43, GLC 200, GLC 250, GLC 43, GLC 300 Coupe, E200, E300, E350, and S450L.

It also runs the Mercedes-Benz Apprentice Training Academy, an automotive technical training institute for school leavers.

As of financial year 2017, Mercedes-Benz Malaysia’s cumulative investment in Malaysia since its inception in 2003, has exceeded RM 1 billion.

Earlier in September, the Pekan plant rolled out its 100,000th Mercedes-Benz passenger car and the plant now exports the C-Class to the Philippines.

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