How competitive is our national automotive industry

The fact is we are paying a lot for our cars relative to our generated income. It is also a fact that we are bounded to 5 to 9 years high liability on hire purchase, which 9 years is most likely suited our affordability for the reasonable car.

Having our own car manufacturing plants and labels had put this fact into disgust prospective. Nowadays we are hearing those company was making losses instead of profit and sustainability of this local industries is in doubt.

What makes our car prices is so expensive locally? Are we victimized by the government policy that supporting this industry at our expenses? Is our car competitive elsewhere whereby the local excise duty protection eliminated? Numerical data on export success of our proven poor thus conclude that we either does not met up the consumer expectation or that we are less competitive elsewhere too.

To build a car not only involves assembly plant. To have a successful automotive industry require a total industrialization from developing the car, developing the components, manufacturing those components, process raw materials to make those components, logistic and human resources.

Typical and most sensible starting point to develop a local automotive industry is to have our own label and a donor car. This stage usually recognized as re-badge, which make the cars ours. This can be done with taking the car as it is or with minimal alteration (example 206, RIA,..) or critical components such platform and engine (example: Proton Wira, Saga, Perdana). This stage involve minor development which mainly consist the part to be changed, badge and certain validation requirement. Few suppliers were born on this stage.

Second stage is localization. Localization can be very beneficial for the manufacturer and local suppliers. Manufacturer acquires good level of cost benefits and the supplier would enjoy good margin. This resulted from imported component cost to locally manufactured cost. With local low cost labour in various government incentives on infrastructure, the suppliers’ manufacturing cost is relatively low.

Government plays a major role on this stage. It includes machinery and technology incentives, tax exemption and local industry protection. The mission is to accelerate the industry growth, expanding infrastructure and developing local experts.

From my observation, we did quite well on this stage. To date, we are capable of processing plastic, sheet metal, tooling fabrication, material compounding, glass manufacturing and lots more. The industry provides thousands job opportunities and raised hundreds if not thousands corporate figures.

We however failed miserably on the later phase. Our automotive industry always at threat of elimination and worse of all, our brands is the least appreciated by public.

One of the major sources of this failure is our dependency to global commodities and incapability of producing key high tech or safety components. With our relatively weak currency and have to import most of the material required prior to process them here make the cost relatively high and putting us out of competitive prospective.

In general, following are some of key ingredients requirement and its local availability:
Plastic
1. Polypropylene – Commonly used for common plastic part. Cheapest material. Widely used. Locally produced by Titan Chemical. Automotive usage usually requires compounding with additional substance.
2. Polyethylene – also produced by Titan
3. ABS (sheet or grain) – imported
4. PC (high clarity, usually used for headlight) – imported
5. Glass fibre – imported
6. Isocyanate/ polyol (to make foam) - imported

Sheet metal – Imported
Metal – Imported

Some of essential process requirement of components making:
Injection moulding – widely available
Thermoforming – widely available
Stamping – widely available
Casting (gravity/ pressure) – widely available
Forging (essential for transmission and high power engine component) – not available
Rubber extrusion – widely available


Just by looking at some of the core process and material, we know that our automotive industry is still lacking on the competitiveness. The idea of competitiveness is to be as close as possible to the source of the cost. This would mean getting the raw material at cheapest possible cost and cheapest possible process cost.

Plastic material derived from petroleum. We are petroleum producer country. We should be able to fully exploit these raw plastic material sectors. I don’t think that we done enough. Selling price of this material however in different scenario. Again global commodity price is the factors. This will eventually lead us to ‘subsidizing’ kind of solution to keep the cost down and stimulate local plastic industry growth.

Metal sheet that is the basis of stamped parts that makes the car structure, body panel, brackets and others is not available locally. We imported in roll form which put us in quite a distance to the its natural source states. We had Perwaja once that should drive itself to produce sheet metal, but the industry was loss without even started to this stage of application.

Machineries and facilities required to process these material was given significant advantages by our government before. There were grant system enable the supplier to have the machineries almost free. Thus, depreciation/ recovery element is almost insignificant and gave them the manufacturing cost advantage edge. Labour acquired overseas and cheap. Utilities especially electricity is abundance in Malaysia with IPP existence. Still manufacturer have to pay high cost on energy requirement. Having said that, I am sure we still have to competitive edge on this element is we want to.

What actually happened within this industry in Malaysia is greediness. There is also another element of import tax exemption. We need to understand the criteria to know the snowball effect to our industry.

No tax for component/ material that is not available locally. Imported goods but option available locally is exposed to tax.
There are two thing happened from the above criteria:
Locally produced goods can be more expensive relative to global price due to import tax imposed will usually make imported goods more expensive
Continuous trading for non-available local goods is more profitable and manageable compare to locally developed and produced.
Both of these effects have negative impact to our automotive industry. We tend to develop more traders rather than producers. Traders is just an extended middle man and we are not sure how many layers of middle man is there before we get the goods here. Each stop point will have its own management cost and profit taking.

Back to the greedy factor, this industry were started by giving out opportunities to ‘nobody’ and corporate figure for high prospect business, high-level assistance from government and strong profit margin. The industry did not evolve fast enough and the authority gave more incentive and protection. This resulted on easy-profit low risk taking by the suppliers. To leave this industry and loss its competitive momentum through protection had proven unwise. This sector grows with business opportunity but lack of technology acquisition and ownership. We develop bunch of profit lover kind of businessman with dollar sign on the forehead. We rarely saw automotive enthusiast figures, which prolonged the negative consequences of this effect.

So we had lots of money loving company owner with pocket full of money. Instead of re-investing to the industry on technology acquisition and continuous improvement, lots had diversified the business. Some turn out good and some turnout bad. Important thing is that the money had been driven away from the total industry development.

In conclusion, our automotive industry as it is now is not competitive. We are lacking of core infrastructure especially on raw material production. We are lack of technology availability that limited us from producing certain vital component on our own. We are not technology driven but profit oriented.

Cheap or expensive of a car is not actually the tag price itself, but affordability. Affordability is our purchasing power and for most of us we do not have the purchasing power. There were a few thing that the industry could do differently especially in wealth distribution. Should the wealth distributed more fairly and these corporate figures could live with less number that would give us more purchasing power. More buying will accelerate economic growth. Bear in mind that this industry provides thousands of jobs. These thousands income-earner also helping the parents. The parents will have better purchasing power and further economic growth. It could make a huge different and the chain effect would be outstanding.

I think I will stop here. I was just analyzing our situation now. Knowing that we could design a good way to move forward. I shall discuss about that in my next posting.