Afta And The Malaysian Car Industry

Afta And The Malaysian Car Industry

For the automobile industry, all the components and parts that are needed for the car industry will be affected. Everything from the tires to the engines is included in the CEPT. Malaysia has used high import duty and local content policies to protect its national cars, domestic assemblers and component part makers. (Refer to Table 2). With the introduction of AFTA, all trade barriers will be removed and this is turn can have negative implications for the Malaysian automobile industry. Domestically, Proton has the advantage in terms of dominant market share and a well-established distribution and service network. This situation will remain for the next three years at least, following Malaysia’s deferment to 2005 of market opening measures for the auto sector under the AFTA agreement and Malaysia’s commitment to the WTO. But the situation concerning Proton’s dominance in the local market after 2005 can be threatened. Removal of all the trade barriers can result in the following:

(1)   Foreign competition, which can pose serious threat to the future development of the local automobile industry,

(2)   Outside pressure on the local market from other manufacturers in both component and finished products,

(3)   Collapse of the inefficient and weak firms at the expense of stronger ones.

The issue is which way should Proton and its suppliers take. Are Proton and its suppliers ready for this? The following attempts to discuss alternative measures taken by them to face the challenges posed by AFTA. However, AFTA, in a positive perspective would drive the regional manufacturing integration and cost competitiveness among ASEAN countries rather than being a threat to them. It is expected to contribute to an increase in technology transfer to this region as well as more labour opportunities. ASEAN is a key strategic automotive market for many reasons:

1. The ASEAN population is 510 million. Currently the car sales have been increasing. In 1998, it was 500,000, in

2000, 1 million and projected to be 1.5 million in the year 2003. The leading supplier for the whole ASEAN region is Proton with 22 per cent of the market due to its monopoly in the Malaysian market. Toyota is the second in the list with a 20 per cent share.

2. Another reason is the growing economic growth of the ASEAN countries. Despite of the effected GDP in 1998 due to economic turmoil, its growth average in selected ASEAN countries (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) is averaged at 8 percent and the projected growth rate for the year 2000-2004 is the same average at 8-10 per cent. Since the market is very attractive, many foreign giants from Japan and the US have already invested in this region. From 1995-1999, US giants like Ford, General Motors (GM), Daimler, Chrysler, have invested in Thailand.

Malaysia has delayed the inclusion of 218 tariff lines (products) on Completely Built-Up (CBU) and Completely Knocked-Down (CKD) automotive products until 2005. The delay is aimed at providing domestic automotive industry more time to recover from the impact of the regional financial crisis of 1997. The delay is also to allow the domestic industry to undertake the necessary restructuring exercise and prepare for market opening under AFTA, without disrupting long-term development of the industry.

                                                                   

Proton has to respond accordingly and take into account its vision, current position, challenges ahead as well as to prepare the strategy. Currently, Proton cars cover 64 per cent of domestic sales since 1987. From that year their market share has always been above 60 per cent and has been improving every year until 1997 before dropping because of the economic downturn.

Proton also gains its mileage as one of the top three players in the domestic market share:

(1988-73%; 1991-64 %; 1994-71 %; 1997-64%; and 1998-63%)

(Proton, 2000).

The challenges facing Proton with the coming of AFTA include:

(1)   Low exports volumes,

(2)   Proton doesn’t own its products. The Proton model line up includes Saga, Iswara, Wira, and Satria (including Satria Gti). Tiara, Putra and Waja, which come in various body sizes, and ranging from 1.1, 1.3, 1.5, 1.6, 1.8 and 2.0 litre engines. The Wira and Perdana models are largely Mitsubishi designs, the Tiara being Citroen designed, and the Satria and Putra models being Malaysian redesigned variants of the Wira model. With the exception of the Waja model, the other products are not owned by Proton per se including the engines.

(3)   Although Proton already penetrated the export market since 1986 it has seemed that Proton acquired low brand power outside Malaysia. As a result, Proton received weak customer loyalty and retention rate. Besides, the perceived quality of Proton is not encouraging.

(4)   Competition from MNCs in ASEAN. US giants like Ford, General Motors (GM), Daimler, and Chrysler have already invested in Thailand.

Proton needs to successfully place itself to be a domestic or regional player, or prepare a response to these challenges. In order to achieve this, a few strategies should be carefully selected and implemented accordingly. Given the promising position of the automotive market in ASEAN, Proton has the potential to gain success. Proton’s strategies lie on focusing on these few viable measures that it is capable of doing:

(1)   Proton has to look into new product development to improve the capability of the existing models;

(2)   Venture to new markets,

(3)   Flexibility in manufacturing; 

(4)   Building a network of alliances.

(5)   Improving customer care and brand image, and 

(6) Building a world-class vendor.