NAP: Proton And Autopart Makers Seen The Winners

October 29, 2009 15:08 PM

NAP: Proton And Autopart Makers Seen The Winners

By: Ramjit

-->

KUALA LUMPUR, Oct 29 (Bernama) -- National carmaker Proton Holdings Bhd is seen as the immediate beneficiary of the more open National Automotive Policy (NAP) as it already has available capacity for potential auto manufacturers to capitalise on.

Other beneficiaries are the tier-1 autoparts suppliers as the industry consolidates further with the enforcement of mandatory standards on parts and components, OSK Research said on Thursday.

"Overall, we think most players in the industry will potentially benefit as the NAP ensures the long-term viability and competitiveness of the automotive industry, thus transforming Malaysia into a regional and global player," it said.

Under the policy, the government informed that the potential partnership with a global original equipment manufacturer (OEM) will be established.

Market talk is that the tie-up could potentially involve a strategic tie-up with a local assembler, and a likely candidate is DRB-Hicom.

"However, our channel checks reveal that the potential strategic tie-up will merely be with a global OEM without the inclusion of a local assembler," said OSK Research.

Potential candidates, it said, are likely to come in on a bigger scale.

The lifting of the freeze on issuance of new manufacturing licences to selected manufacturers bodes well for the existing local manufacturers and assemblers, notably those with ample excess capacity, which are ready to be capitalised on by foreign automakers, the research firm said.

Furthermore, the additional incentives such as tax exemptions on exported goods and fiscal deductions from the pioneer status and investment tax allowance for the manufacture of critical components will see potential foreign candidates investing in Malaysia in a big way rather than merely as assemblers, it said.

OSK Research said the possibility of a global OEM maker establishing its manufacturing hub as a regional export centre is favourable for Proton given the ample capacity for 200,000 units (per year) at its Shah Alam plant.

Proton currently has a total excess capacity of 57 per cent from both its Tanjung Malim and Shah Alam plants. The carmaker once said it intended to shift its main production to Tanjung Malim given that some of its model line-ups produced from the Shah Alam had been discontinued.

Although Thailand is ahead of Malaysia on incentives by offering lower excise duties on vehicle prices, exemption of import duty on plant machinery in addition to the already established supply chain, the downside is that this requires a minimum investment of RM1 billion.

"We generally view the newly-announced NAP positively as Malaysia will be opening up the automotive industry for value-added investments from global OEMs and leading part manufacturers, especially with the host of incentives such as corporate tax holidays and tax exemption on exported goods," said OSK Research.

To date, Thailand has seven global OEMs -- Toyota, Mitsubishi, Isuzu, Honda, Nissan, Ford and General Motors -- and a few smaller ones that have set up plants with capacity totalling 1.625 million units as of 2008.

As none represents the European region, Malaysia may try to attract global OEMs from this region instead.

This was hinted in the announcement, with respect to relaxation of the ruling on foreign manufacturers in the luxury passenger car segment.

"With regard to the model range offered in Malaysia, we note that the notable luxury passenger vehicles (with an engine capacity of 1800cc and above in the price category of at least RM150,000) worth mentioning which have yet to set up manufacturing lines in Malaysia are Renault, Volkswagen and Porsche (owned by Volkswagen)," said OSK Research.

"We exclude common names such as Mercedes and BMW given that these vehicles have already established a local assembly contract with Automotive Manufacturers Malaysia and Inokom respectively," it said.

"As Renault sits under the Nissan umbrella, it would make more commercial sense to establish a tie-up with Tan Chong, which means a high possibility that a potential strategic tie-up between Proton could be Volkswagen."

Hence, if Volkswagen or any other European car maker establish a sizeable manufacturing hub in Malaysia, there could be a potential shift in buying preference from Japanese luxury cars (which are currently affordable) to the European cars when pricing competition heats up, OSK Research noted.

Over the longer term, this will eventually see the knock-down effect trickling to the lower priced cars due to intensifying competition, it said.

-- BERNAMA

We provide (subscription-based)  news coverage in our Newswire service.