Automobile Industry of Malaysia

Essay by jameslim1 August 2004

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Malaysia's Auto Industry: An Economic Safety Net

Prime Minister Mahathir prizes development of an indigenous auto industry as his pet project. He has sought to develop the auto sector to avoid a huge trade deficit and to reduce the effects of volatile changes in rubber and palm oil prices on the economy and promoted the sector to help speed recovery from the Asian economic crisis. The Malaysian government also believes that a strong motor industry brings employment, technology, economic development, and prestige. Malaysia's two national car makers, Proton and Perodua, dominate the local market, with over 90 percent market-share of passenger-vehicles due to the government's protective policies.

U.S. Automakers Face a Multitude of Trade Barriers

Malaysia maintains several measures to protect the local automobile industry: the highest import duties on autos and motorcycles in Southeast Asia and in the world (passenger car duties ranging from 140% to 300%), a 10 percent sales tax, a graduated excise tax that ranges from 25 to 65 percent (with national cars receiving a 50 percent reduction in the tax), import quotas, an unclear and non-transparent licensing system that requires an "Approval Permit" on imported autos, and local content requirements for autos produced in Malaysia by foreign companies that range from 45 to 60 percent for vehicles and motorcycles, and incorporates a "deletion list" of parts which must be sourced in Malaysia.

Most import duties are based on engine size and capacity. This "national car policy" prevents American cars from competing on a price basis, particularly for larger sized, American cars and motorcycles.

Domestic Industry Thrives Under Protection

Malaysia argues that the national car industry needs more preparation time to compete globally and is not ready to reduce or abolish protective measures. As recent statistics prove, the domestic auto industry is...