“Market Watch 2010”

The Malaysian Automotive and Supplier Industry

General Overview
With an annual average of 20% export surplus, Malaysia is one of the 20 largest
export nations worldwide. According to the ”Global Enabling Trade Report 2009”,
it has even achieved to continously better its position from year to year. The
report, which is launched by the World Economic Forum, lists 121 countries, among
which Malaysia is now ranked 28th in terms of economic attractiveness for
international investments.
Despite the world-wide crisis, Malaysia’s total trade in 2008 amounted to RM 1,185
trillion, which depicts an increase of 6,8% compared to 2007 trade balance;
exports even rose 9,6%. For the third year in a row now Malaysia surpassed the RM
1 trillion mark, with a trade surplus summing up to RM 141,883 million1. But the
weak global markets also affected Malysian trade at the beginning of 2009. In the
first 6 months of 2009, total trade accounted for RM 441,75 billions, depicting a
decrease of almost 30% in comparision to the first half of 20082. In the second half,
however, business had already started to increase again and economy had almost
recovered its former strength by December 2009. Prognostics for the year 2010
already calculate with a rate of 3,2 % increase of GDP3.
Major export countries for Malaysian goods are Singapore, Japan, China, India,
Korea as well as the United States, Australia, the Netherlands and Germany among
others. In 2008, Malaysia’s largest export revenue contribution was made by the
electrical and electronics products sector (38%). Other crucial sectors are palm oil
and palmoil-based products, crude/ refined petroleum, liquefied natural gas and

1
The National Trtade Promotion Agency of Malaysia
2
Malaysian Department of Statistics
3
TradingEconomics-Global Economics Research

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

timber/timber-based products. Major import products are electrical/ electronic

products, machinery, iron / steel products and chemics as well as chemical
products.
Malaysia’s top five trading partners were the United States of America, the
Republic of Singapore, the European Union, the People’s Republic of China and
Japan. Malaysian FDI in approved projects has experienced a constant growth
during the last years and reached RM 48 billion in 2008. Sources of foreign
investments mainly lie in Japan, Germany, the USA and Singapore4.

Malaysia Key Facts 2009

Population: 27.73 million
GDP: RM 612,4 billion
GDP Growth: -3,0%
Inflation Rate: 1.3%
Per Capita Income: RM 24,447 (US$ 7,246)
Vehicle Parc: 17.42 million units (Passenger cars: 7.7 mil)
Vehicle Parc/Population: 1:5
Source: Malaysian Industrial Development Authority (MIDA)

Malaysia: The biggest automobile customer market in South-East Asia

The history of the Malaysian automotive industry dates back to the early 1960s, when the
Malaysian government developed a policy to promote an integrated automotive industry to
strengthen its industrial base and reduce its dependency on the agricultural sector. The
main objective of the promotion of the automotive industry constituted the limitation of
imports, the reduction of expenses in foreign exchange, the creation of employment and
the development of the industrial sector. Even nowadays, the automotive industry is
designated to boost the country’s industrialization process and to enable it to reach the
status of a developed nation by 2020. The Malaysian national automotive industry is not
only one of the major industrial sectors, but also represents a matter of national pride. In
terms of fact and figures, the sector ranks amongst the top 20 in the world and disposes of
the largest passenger car market in the ASEAN region.

4
German Trade and Investment Center

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

In the 1960s and 1970s, the industry was fragmented and consisted of inefficient assembly
plants. The industry’s progress to a well-developed manufacturing sector with regards to
motor vehicles as well as components can be traced back to numerous government
incentives that were initiated in the mid-1980s and remain until today.
As a result of this policy two national car projects – Proton, which commenced operation
in 1985, and Perodua, which was founded in 1994 – dominate the automotive industry
commanding 26% and 30 % respectively of the local market. In the non-national car
segment, Nissan held 65% of the market, while Toyota held 18% and Honda 6%.5

The entry of Proton into the local automobile market resulted in massive structural
changes in the industry. The industry shifted from assembly activity to manufacture of
vehicles and automotive parts. The sales and the market share of Japanese cars, which
had dominated the market prior to the launch of Proton, were reduced as Malaysians
bought their national car. The success stories of Proton and Perodua were positively
influenced by high tariffs imposed by the government. Many analysts viewed the
protectionist policies implemented by the Malaysian government as the most intervening
among ASEAN countries. As a consequence, national cars’ market share amounted more
than 60% of the total sales (2006 figure).
In 2006 the government introduced the National Automotive Policy (NAP) that envisions
the progressive liberalization of the car market through strategic tie-ups and alliances in
order to eliminate competition.6
Today, with the opening of the market due to the ASEAN Free Trade Agreement (AFTA)
the national cars domestic market share has dropped to less than 60%. National car
dominance is expected to decline further with more liberalization in the near future.
German car manufacturers have already entered the Malaysian market. Nevertheless,
those companies are mainly active in the niche market of luxurious cars.
Since 2009 the auto industry shows a fiscal stimulus package and the auto rebate scheme
for trade-in cars to purchase national brands. It includes a RM 5000 voluntary auto
scrapping incentive. In the light of the financial crisis and the deteriorating market
condition involved, this governmental step represents an urgently needed relief. The

5
The Financial Edge, Mo. 1st of Dec. 2008
6
MACPA (The Malaysian Automotive Component Parts Manufacturers), March 2009

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

rebate and scrapping scheme should ensure that the auto industry remains active due to
trade-in circle.7

Car imports and protectionist policies

To protect the local automotive industry, a number of import restrictions were imposed on
foreign vehicles.
With more than half a million sales per year, Malaysia is the biggest market for
automobiles in South-East Asia. For a long time Malaysia's government has protected its
auto industry from foreign competition by introducing an Asian material content policy,
which included imposing high tariffs as well as non-tariff barriers. "National autos", those
manufactured by Malaysian producers such as Proton and Perodua, benefit from
preferential treatment compared to "non-national" autos. The latter category includes
even those automobiles that are manufactured in Malaysia by foreign-owned companies.
High excise duties, import duties of about 50% (non-ASEAN) and so-called Approved
Permits (APs) also belong to these restrictions. The Ministry of International Trade and
Industry (MITI) issues the latter only to ‘qualified’ local personnel and companies, which is
the main reason for foreign companies to cooperate with local partners.
However, measures have already been undertaken to reduce trade barriers, as the
government is forced to abolish this policy within the near future due to its obligations in
the World Trade Organization (WTO) and in the ASEAN Free Trade Agreement (AFTA).

Auto Parts Manufacturing Industry in Malaysia

2005 2006 2007 2008 11/2009

Production RM 5.86 RM 5.24 RM 5.45 RM 6.36 RM 5.19
Import RM 3.94 RM 3.86 RM 4.05 RM 4.59 RM 3.84
Export (RM 1.44) (RM 1.60) (RM 1.94) (RM 2.04) RM 1,78
Market Size RM 8.36 bn RM 7.50 bn RM 7.56 bn RM 8.91 bn -
Source: Department of Statistics of Malaysia

7
Malaysian Institute of Economic Research

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

Production
Malaysia has now become one of the region’s largest auto markets with vibrant production
activities. Currently, six motor vehicle manufacturers (including National Automotive
Projects) operate in Malaysia:

Perusahaan Otomobil Nasional Bhd (Proton)

Perusahaan Otomobil Kedua Nasional (Perodua)

Industri Otomotif Komersial (Inokom)

Malaysian Truck and Bus (MTB)

Naza Automotive Manufacturing Sdn. Bhd. (Naza)

Honda (M) Sdn. Bhd.

During the first half of the year 2009, Perodua remained the country’s top carmaker with
77,045 units sold, followed by Proton (67,770 units). Currently Perodua has a 30.5% share
in local market. Its total sales for the year 2008 increased by 3% compared to 2007. In this
context it is noticeable that among the six car companies, five managed to increase their
market share during the first half, against the first-half of last year (2008).8

There is one more manufacturer, Bufori (www.bufori.com) which is manufacturing 80%

handmade cars. As the volume is low (less than 400 units a year), the company is not
regarded as a commercial-scale manufacturer. Bufori is sourcing many major components
in Germany.
The total installed production capacity for passenger and commerical vehicles amountes
to 963,300 units per year and 1 million motorcycle units per year respectively (2009).9 At
present, the automotive sector employs about 45,327 workers.
In 2008, the overall production of passenger vehicles10 totaled 530,810– an increase of
18,6% compared to the previous year.

8
New Strait Times, Fri.,24.July 2009
9
MIDA
10
Passenger vehicles include passenger cars, window vans, multi-purpose vehicles and four wheel drive/sports
utility vehicles

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

Table 1: Motor Vehicle Production

Passenger Vehicles Commercial Vehicles Motorcycles*

Year Units % Change Units % Change Units % Change
2002 380,050 6.8 76,772 5.4 228,115 5.3
2003 327,450** -13.8** 99,196** 29.2 251,295 0.7
2004 364,852 11.4 107,123 8.0 368,490 46.6
2005 422,225** 15.7 141,183** 31.8 406,150 10.0
2006 377,952 -10.5 125,096 -11.4 432,300 6.4
2007 403,245 6.7 38,433 -69.3 446,430 3.3
2008 484,512 20.1 46,298 20.5 532,697 19.3
9/2009 325,544 30,846

Source: Malaysian Automotive Association (MAA)

* Malaysian Industrial Development Authority (MIDA)
** Amendments according to MAA

Investments
In 2007, 36 projects worth RM 342.6 million were approved in the automotive industry.
Out of this sum, new investments accounted for RM 44.5 million (12.9%) whereas
expansion/diversification projects accounted for RM 298.1 million (87.1%).
Domestic investments in 2007 amounted to RM 300.9 million (87.72%), while foreign
investments totaled RM 41.9 million (12.3%). Out of the 36 projects approved, 30 were
either wholly or majority owned by Malaysians with investments of RM 328.7 million.

Investments in 2008 increased remarkably and summed up to RM 1.5 billion at the end of
the year. A total of 48 projects was approved, with 50% of them being completely new
investment projects. Domestic investments raised up to RM 1.4 billion (93.3%), exceeding
the investments of the previous year by more than 400%. RM 114,4 million were invested
by foreigners (6.7%).

Sales
Against other countries in Southeast Asia, Malaysia’s total industry sales volume is at least
8 per cent higher than its closest rival for instance Thailand and Indonesia.11

11
New Strait Times, Fri.,24.July 2009

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

According to actual figures from the Malaysian Automotive Association (MAA) total vehicle
sales for the year 2008 accounted for 548,115 units. Since the beginning of 2009,
consumer sentiment has recovered due to greater stability in the employment market,
which was being boosted by the government’s stimulus packages. The launch of the
national car manufacturers’ new models was an additional factor in sustaining consumer’s
interest and in improving industry volume during this period.12

Table 2: Total Vehicles Sales

Passenger Commercial
Year Motorcycles*
Vehicle Vehicle
2001 327,447 37,623 252,747
2002 359,934 42,727 222,685
2003 320,524 50,882 317,085
2004 380,568 70,948 398,800
2005 416,692 97,820 440,000
2006 366,738 90,471 422,550
2007 442,885 44,291 487,176
2008 497,459 50,656 548,115
9/2009 361,463 36,156 397,619

Source: Malaysian Automotive Association (MAA)

* Malaysian Industrial Development Authority (MIDA)
** Amendments according to MAA
Note: Commercial vehicle reclassified in 2007 to include trucks, prime movers, pick-up, panel vans, bus and others.

Distribution
The distribution market of CBUs (completely built-up units) in Malaysia is dominated by a
few big local companies, namely Sime Darby, DRB-Hicom, Naza Motor Trading and Cycle &
Carriage Bintang Bhd. National car manufacturers appoint one or more companies to act as
a distributor for them, while foreign carmakers choose different means to distribute their
automobiles.

Import
Imports of motor vehicles’ parts and components in 2008 totaled RM 4.6 billion, compared
with RM 4.5 billion for the whole year 2007.13 To stimulate the demand for locally

12
Financial Daily, Business Edge, Fri, 24. July 2009
13
Malaysia: Performance of the Manufacturing and Service Sectors 2008

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

manufactured and assembled cars, the import of second hand cars (other than individual
personal import) will be banned in 2010.

Export
Exports of motor vehicles parts and components in 2008 amounted to RM 6.37 billion,
compared with RM 5.46 billion for 2007.14 Major export destinations are ASEAN countries,
but large quantities are also transferred to Germany and China.

Component industry
The launching of Proton in the early 1980’s catalyzed the development of the ancillary and
supporting industries by creating opportunities for growth in the manufacturing of
component parts and accessories. Currently, there are more than 690 automotive
component manufactures and 120 motorcycle component manufactures.
The automotive component industry today has achieved the capabilities and competency to
design and develop components both for the original equipment and replacement markets.
Malaysia continues to be one of the main producers and exporters of vehicle parts,
components and accessories in the region. These products have been accepted in Japan,
Germany and the UK due to their quality, compliance with international standards and
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competitive prices.
Due to the dynamic development of the sector, the sales volume of components and parts
could registered a steady growth during the last decades. In 2008, sales reached RM 6.37
million, denoting an increase of 16,6% compared to the figures of the previous year. The
majority of the component manufacturers have achieved a value added of 25 – 50% in
2008. Along with this, the local content of national cars of all ranges average between 60-90
% while the percentage of local content in domestically assembled foreign cars of all ranges
average between 40-60%. 16
Local component manufacturers besides having the capability to export have also
undertaken cross border investment into the neighboring ASEAN countries, especially
Thailand.

14
“Malaysia’s Automotive Industry” Report by MIDA
15
ibid
16
ibid

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

The National Automotive Policy (NAP)

Given the significant challenges facing the automotive industry, in particular globalization,
economic liberalization and increasing competition, the Malaysian government felt that
there is a need to review the strategic direction and policy framework for the domestic
automotive sector. This change towards a less regulated policy is crucial to maintain the
competitiveness of the domestic automotive sector in the country and internationally and
to make it thus viable in the long term. Having this in mind, the government launched the
National Automotive Policy (NAP) in March 2006, which primarily aims at progressive
market liberalization. In September 2009, the NAP was revised to encourage new
investments, ensure a long term sustainability of the domestic automotive industry,
ensure safety and quality of products and services and protection of the environment.

Some highlights on the revised NAP:

1) Manufacturing licence
Local assembly of luxury passenger cars above 1,800 cc or priced above RM150,000 is fully
liberalized. This means foreign firms are allowed to obtain manufacturing licence and can
hold 100% equity in the companies.
However, Current policy on the freeze of manufacturing licence for reconditioning and
reassembling activities is maintained.
2) Amendments to the AP System (Approval Permit)
The issuance of APs will be stopped by end 2015.
3) Incentives
Incentives such as Pioneer Status/Investment Tax Allowance for the manufacture of
critical components for cars such as brake system and transmission
4) Safety standards
There would be a gradual introduction of Vehicle End of Life Policy. Vehicles above 15
years will have to undergo mandatory inspection during road tax renewal.
5) Tax/Duty
The Import Duty structure is maintained at 0% for CKD and 5% for CBU for AFTA. As for
Excise Duty, there are no changes.
6) Imports
From June 2011, it would be prohibited to import used parts/components.

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

7) Establishment of a strategic partnership for Proton

The quest is on for Proton to have a strategic partnership with a globally established
manufacturer.

ASEAN/AFTA: An economic region grows together

In 2002, the ASEAN was founded to facilitate trading relations between the Asian countries
in particular, but global economy is also profiting from the commitment to encourage
competitiveness. Malaysia, as a member, is subjected to the policies decided upon in this
multilateral forum. Since then, it has thus gradually reduced trade barriers.

Over the years the government has dismantled its protective policies. Import duties on
CKD (completely knocked-down units) and CBU (completely built-up units) from ASEAN
members have been reduced to 0% and 5%. Duties from non-ASEAN countries for CKD have
been reduced to 0%-10%, while duties on CBU have now reached a 30%. Excise duties are
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imposed on all vehicles, irrespective of their origin

The intra-ASEAN trade recorded a constant increase in the last years. The removal of trade
barriers within ASEAN has opened up a vast regional market for automotive companies
which stand to benefit from potential economies of scale and enjoy access to cost
competitive components produced in ASEAN countries.

German-Malaysian bilateral trade relations on the automotive sector

As the automobile sector is the largest German export industry, the car and respective
component exports to Malaysia account for a large part of the German commodities that
are sold in Malaysia.

Table 3: German exports to Malaysia January to December 2008

Description Exports in thousand EUR

Parts and components 37061

Passenger cars and camping vans 83676

17
MACPA (The Malaysian Automotive Component Parts Manufacturers), March 2009

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

Commercial vehicles and specialized vehicles 7794

Other vehicles 1897
Total 103428
Source: Federal Statistical Office Germany

In comparison to German exports to Malaysia, the imports remain on a rather low level as
the following table shows:

Table 4: German imports from Malaysia January to December 2008

Description Exports in thousand EUR

Parts and components 4113

Passenger cars and camping vans 65
Commercial vehicles and specialized vehicles None
Other vehicles 1304
Total 5482
Source: Federal Statistical Office Germany

Several German automobile manufacturers have already engaged in the Malaysian market,
but most of them operate only in the segment of luxury cars of the automotive sector.
Companies such as BMW and DaimlerChrysler have both assembling facilities in Malaysia. A
common way to enter the automobile market in Malaysia is to form a joint venture with a
local company (as BMW and DaimlerChrysler did) to facilitate import and distribution. As
well, manufacturers (such as Audi AG) can appoint a Malaysian company to be their sole
importer and distributor.

Components and spare parts manufacturers can either go on joint venture like Continental
Sime Tyres or set up their own manufacturing facilities like Malaysian Automotive Lighting,
Robert Bosch, Schmitter Automotive, Vogel Sitze, ZF Steering and others did.

Opportunities
1. Companies with new technology are highly sought after. Especially German companies
with good technical know-how are demanded by the local industry.

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

2. Companies with design and testing capabilities.

3. Investment in areas of fuel-efficient engines and alternative fuel engines, conversion
kits, transmission system, automotive electric components and special purpose
vehicles are encouraged.
4. Collaboration with local vendors to supply the ASEAN and global markets.
5. Platform of sourcing strategy: The multi-sourcing facility, which was introduced to
enable assemblers and franchise holders to import components and parts direct from
cheaper sources, has opened up means to penetrate into the regional and global
market.

In the first quarter of the year 2009 Proton announced its plans for the development of
pure electric vehicles (PEV) for the global market. With this plan Proton aims to increase
sales volume and engage into business beyond national borders. Surveys indicated that
Europe represents a key market as consumers were ready to embrace such vehicles and
Proton cars already had a presence. 18 From a governmental perspective, these countries
either provide incentives for owning alternative vehicles or have strict legislation that
encourages their use.

Malaysia during the current Economic Recession

The current economic downturn and financial crisis affect Malaysia as well. Malaysian
banks, however, have not been involved in the U.S. and Western financial markets to a
great extent and are therefore not affected by the crisis in this respect.

On the contrary, the financial turmoil has created an upward trend in the Islamic Banking
Industry when the country is trying to be a world hub in "Islamic Banking". Furthermore,
Malaysia is a very young nation with an average age of less than 24 years (Germany: about
42 years) which is a driver for the consumption. Malaysia’s richness of raw materials for
example oil & gas, natural rubber, palm oil, etc. contributes largely to the state and
private revenues; likewise these revenues promise future income. Malaysia’s central role
in the prosperous ASEAN region with its 570 million people serves further as a regional
home market. The Electronics & Electrical (E & E) is the only highly affected sector by the

18
Financial Daily, Business Edge, Tue., 31. March 2009

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

crisis resulting from its strong dependence on the U.S. and the rest of the world.

Malaysia’s government takes stern measurements and introduces government-driven

stimulus packages to support the economy. On 10th of March 2009, the government
introduced a second economic package for the year 2009. In addition, a "mini budget"
amounting to 60 billion RM (about 13 billion Euros) has been disbursed until the end of
2009.
Under the government’s second stimilus packages, the Malaysian External Trade
Development Corporation (Matrade) has generated RM 33.25 million sales from its
promotional programme for the automotive support sector between May and November
2009.

Malaysia's stimulus package is of comparable amount like some mega-programmes

launched by the United States, China or Singapore, if set in relation to the nominal
economic performance. It contains aids to accelerate implementation of infrastructure
projects, a car-scrap bonus and guarantees working credits and funds for labor market.

All in all, the business sentiments in the auto industry have been slowly recovering. The
fisical stimulus package and the rebate scheme for old cars seem to have helped.19 The
look-outs for the future of the auto industry are positive, going in line with the predicted
gradual economic recovery. The percentage of firms foreseeing an increase in sales rises
to 40%, while another 40% expect sales to remain about the same.20
Because of the ASEAN free trade area (AFTA) under which tariffs have been reduced,
Malaysia’s automotive industry is bright and promising. With its well developed
infrastructure and expertise, especially in the automotive engineering support services,
component manufacturing and electronic gadgets, Malaysian will remain to be attractive
for investors in this industry.

19
Malaysian Institute of Economic Research
20
ibid

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 Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 – The Automotive Sector

Most Important Trade Fairs in Malaysia

AUTO MALAYSIA
Date: 19 Mar – 21 Mar 2010
Place: Matrde Exhibition & Convention Centre
Kuala Lumpur, Malaysia

AUTOMOTIVE ENGINEERING & MANUFACTURING EXHIBITION

Date: 05 May – 09 May 2010
Place: Putra World Trade Centre
Kuala Lumpur, Malaysia

KL INTERNATIONAL MOTORSHOW 2010

Date: 03 Dec – 12 Dec 2010

Place: Putra World Trade Centre
Kuala Lumpur, Malaysia

Contact:
Mr. Thomas Brandt: thomas.brandt@malaysia.ahk.de
Ms. Michelle Lim: michelle.lim@malaysia.ahk.de

We hope the market brief serves you with up to date information on the Malaysian market. Our
core business is the establishment of business contacts, the search for distribution partners, project
acquisitions, etc. Our “Firmenpool Malaysia” or the “Office-in-Office” concept will give you a
permanent address in order to enter the Malaysian market.

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