PETALING JAYA: The potential entry of five foreign vehicle players into Malaysia is expected to boost competition and provide long-term benefits to the domestic industry, observers say.

"New players coming in means added competition which, in turn, means existing players would need to stay on their toes," said an industry observer.

It was reported last month that the Malaysian Investment Development Authority (Mida) was evaluating five foreign vehicle assemblers with a view of allowing them to operate locally.

Mida director-general and chief executive officer Datuk Jalilah Baba was reported as saying the foreign assemblers were from China, India, South Korea and Japan.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said on Oct 4 that the Government would decide on the five foreign assemblers by the year-end.

Frost & Sullivan partner and automotive and transportation practice head for Asia-Pacific, Kavan Mukhtyar, said the robust growth of Malaysia's vehicle market this year was attracting original equipment manufacturers (OEM) to the country.

"It is certainly good as they (consumers) will have more choices. In addition, competition always brings out the best of the various market players. Hence, in general, competition should be welcomed," he said.

MAA president Datuk Aishah Ahmad said she viewed the entrance of the new players positively, adding that it was in line with the trends of market liberalisation and globalisation.

She said the new players would help introduce newer technology and technical expertise to the domestic industry, as well as bring in vehicles with the latest designs.

Aishah also said it would help create more employment opportunities, increase the inflow of foreign direct investments and further enhance the country's image as an attractive investment destination.

"Ultimately, the consumers at large would benefit as the increasing competitive environment would drive auto players to be more innovative and customer-centric in their businesses," she told StarBiz.

An analyst said the outlook for the local motor vehicle industry would be bright if the potential foreign assemblers were keen to develop hybrid or electric vehicles here.

"It would definitely be a shot in the arm for this (hybrid and electric) sub-segment of vehicles. With the possibility of hybrid and electric vehicles being assembled in Malaysia, it would be more affordable," the analyst said.

An industry observer reckons that the freeze on manufacturing licences for vehicles under 1,800cc and which are priced at RM150,000 and below under the revised National Automotive Policy (NAP) would be deterrent for potential assemblers to "set up shop" here.

"Whether you want to admit it or not, the automotive industry is a volume-based industry. The high price of cars puts a strain on sales and buying power, especially within the 1,800cc segment and higher," the observer said.

MAA's Aishah, however, said the freeze should not be viewed as a limitation.

"Passenger cars of 1,800cc and below are by far the largest sub-segment in Malaysia, constituting about 90% of the total passenger vehicle market. Both national and non-national players as well as markets in other Asean countries have been focusing on this sub-segment.

"Therefore, the new measures in the revised NAP are designed to shift this concentration to the next (higher) segment which has not been capitalised in the Asean region," she said.

Aishah said the measures would help attract global car companies to set up production bases for this segment in Malaysia to cater for the regional market and that it would lead to economies of scale and lower production costs.

An analyst said local assemblers, who are besieged by excess capacity issues, could benefit from foreign players coming into the country.

"The capacity in Malaysia is one million vehicles at present but production is only about 500,000. The main beneficiaries would be DRB-HICOM, which owns the massive assembly complex in Pekan, Pahang; and Proton's Tanjong Malim plant.

"Setting up a plant here is also costly and that is why we're seeing more foreign car companies entering into contract assembly agreements with local players," he said.

- TheStar.com