Malaysia Market Summary Malaysia is a member of the Association of South East Asian Nations (ASEAN), a regional trading block with combined annual vehicle sales of 1.5 million units (1996, pre financial crises.) Before the beginning of the current economic crisis in 1997, Thailand was the largest automotive market within the ten-nation ASEAN, with Indonesia ranking second in the group, followed by Malaysia, and then the Philippines. For 1997 and 1998, Malaysia was the largest vehicle market, followed by Thailand, then the Philippines and Indonesia (vehicle sales in 1998 for the entire ASEAN market were down 73 percent compared to the pre crisis levels of 1996.) The other ASEAN nations include Brunei Darussalam, Burma (Myanmar), Cambodia, Laos, Singapore and Vietnam. Malaysia's 1995 unit vehicle sales were approximately 286,000 units. Sales in 1996 were 365,000. Malaysia did not begin to feel the affects of the economic crisis until late in 1997, allowing Malaysia to have another year of vehicle sales growth. Vehicle sales were up 11 percent in 1997 to a record 405,000 units. The economic crisis dramatically impacted vehicle sales in Malaysia for 1998, with vehicle sales dropping by 60 percent, to 164,000. The Malaysian auto market is dominated by Malaysia's national cars, Proton and Peruda which in 1998 accounted for 90 percent of the vehicles sold annually. Some 25 other manufacturers compete for the remaining 10 percent. In July 1998, the GOM approved a new national vehicle program to produce a national van, the Inokom Permas van. According to local press, the van will be based on the Renault trafic van and produced by a joint venture consisting of Berjaya Group Bhd (35 percent), Polis Diraja Malaysia Cooperative subsidiary Pesumals (M) Sda Bhd (30 percent), Hyundai Motor Sdn Bhd (5 percent), Hyundai Motor Company (15 percent) and Renault (15 percent). This van reportedly will be exempt from import duties on CKD components and will receive a reduction of 50 percent on the excise tax, resulting in a potential 20-30 percent price differential with other products in this niche. (This program is the likely replacement of a third national car program which was considered during 1994 and would have involved Citroen.) According to International Trade Commission (ITC) data, for the full year 1998, U.S. vehicle exports to Malaysia were down 74 percent, from $6 million to $1.6 million, compared to 1997. U.S. Motor Vehicle Investment in Malaysia Ford: Ford has a joint venture operation with Associated Motor Industries which assembles passenger cars and commercial vehicles (SKD and CKD kits) which are Mazda designed vehicles with a Ford nameplate. DaimlerChrysler: In late 1992, Malaysia's largest finance company, MBf, went into the vehicle assembly business in order to find new markets for its financial services. In January 1993, Mbf reached an agreement with Chrysler to initially import completely built up right-hand drive Jeep Cherokee models. Chrysler's CKD agreement with MBf grants MBf a license to assemble and distribute right-hand drive Jeep Cherokees. MBf began local assembly of the Jeep Cherokee in July 1993. Chrysler also has plans for MBf to assemble and distribute right-hand drive Jeep Wranglers. In its quest to capture 20 percent of the fast-growing sport utility vehicle market, Chrysler builds approximately 1,500 to 2,000 4-door Cherokees per year. Chrysler plans to export an estimated 1,300 units annually (valued at approximately $10 million). Chrysler also plans for additional vehicles for the Malaysian market, including its right-hand drive Jeep Wranglers. Trade Barriers Tariffs: The import duty for passenger cars is between 140-300 percent, based on engine displacement. [New Diesel cars (CBUs) are charged a rate of 120 percent, while used diesel cars are charged the same rates as gasoline engine vehicles (chart below)]. Passenger Cars   CBU CKD Engine Capacity (cc)     Less than 1,800 q q 1,800 - 1,999 170% 42% 2,000 - 2,499 q 60% 2,500 - 2,999 250% 70% 3,000 and above 300% 80% The import duty for 4WD and MPVs ranges from 60-180 percent. 4WD and MPVs   CBU CKD Engine Capacity (cc)     Less than 1,800 60% 10% 1,800 - 1,999 80% 20% 2,000 - 2,499 150% 30% 2,500 - 2,999 180% 40% 3,000 and above 200% 40% The import duty for vans ranges from 42-140 percent. Vans   CBU CKD Engine Capacity (cc)     Less than 1,800 42% 5% 1,800 - 1,999 55% 10% 2,000 - 2,499 100% 30% 2,500 - 2,999 125% 40% 3,000 and above 140% 40% Commercial Vehicles CBU CKD 30% Nil Automotive Parts and Components: The import duty for auto parts and components ranges from 5-30 percent, and is tied to local content regulations. The import duty for National Cars (Proton and Perodua are the two national vehicles) CKDs is 13 percent. Taxes: A 10 percent sales tax on all vehicles is assessed. An excise tax on passenger cars is assessed on a graduated schedule: First RM 7,000 x 25% Next RM 3,000 x 30% Next RM 3,000 x 35% Next RM 7,000 x 50% Next RM 5,000 x 60% Balance x 65% There is a 45 percent excise tax on MPVs and 4WD vehicles. There is a 30% excise tax for vans No excise tax for commercial vehicles National cars receive a 50 percent reduction in the excise tax. A road tax of 0.13 to 3.6 ringgits is assessed, based on engine displacement. Other Measures: National Car Policy: The Malaysian government heavily influences the activities of the domestic automotive manufacturers/assemblers. Malaysia has developed the automotive sector to help reduce the effects of volatile changes in rubber and palm oil prices on its economy, avoid having a huge trade deficit, and as a platform for economic development. Malaysia believes that a strong motor industry brings employment, technology and prestige. Nine vehicle assembly companies produce 18 cars and 14 commercial vehicles, but the market is dominated by Proton and Perodua, Malaysia's National Car companies. In 1985, the Malaysian government formed Proton, in conjunction with Mitsubishi, to assemble its first national car. There are now 5 models being produced under the Proton name. In October 1996, Proton acquired Lotus, and plans to integrate specific models into its national car program. In 1996, the Malaysian government sold its equity in Proton to a private company-- HICOM-DRB As of August 1999, reports indicated that Petronas, a nationally owned oil company, have purchased controlling interest in financially troubled Proton, to give it a much needed cash infusion. Purchases of non-Proton vehicles and vehicles over RM 40,000 require a 25 percent down payment and a four-year maximum payment period. The national cars (Proton and Perodua) are exempt from import duties and are granted a 50 percent reduction in excise taxes (not available to foreign manufacturers). Protons typically sell for half the price of import equivalents. National cars (Proton and Perodua) are assessed an import duty of 13 percent for CKDs versus 42 percent for other CKDs. Malaysia is required to eliminate its National Car preferences by 2000, under the World Trade Organization's Trade Related Investment Measures (WTO TRIMs) Agreement. In July 1998, the Government of Malaysia (GOM) approved a new national vehicle program which authorizes a new national van, the Inokom Permas van. The van is based on the Renault trafic van and is being produced by a joint venture consisting of Berjaya Group Bhd (35 percent), Polis Diraja Malaysia Cooperative subsidiary Pesumals (M) Sda Bhd (30 percent), Hyundai Motor Sdn Bhd (5 percent), Hyundai Motor Company (15 percent) and Renault (15 percent). This program is likely the replacement of a third national car program which was considered during 1994 and would have involved Citroen. This van will reportedly be exempt from import duties on CKD components and will receive a reduction of 50 percent on the excise tax, resulting in a potential 20-30 percent price differential with other products in this niche. Import Bans and Quotas: An approval permit (license) is required for imports of motor vehicles, which limits importers total market volume for completely built-up units (CBUs), effectively acting as an import quota. It is unclear whether this is a 5 or 10 percent quota. Malaysia maintains an import ban on motor vehicles from Israel and South Africa. Local Content Requirements: Classification Percent Local Content Category I Passenger vehicles up to 1,850 cc 60% Category II Passenger vehicles 1,851 - 2,850 cc Commercial Vehicles up to 2,500 GVW 45% Category III Passenger vehicles above 2,850 cc Commercial Vehicles above 2,500 GVW Localization of Mandatory Parts List Items Only Local content is based on a point system, not on volume (different parts are assigned a point value by the GOM). Local content requirements for non-Proton assemblers include 30 mandatory items -- ranging from mud flaps to shock absorbers to exhaust systems. Malaysia has not defined its policy commitment to eliminate mandatory parts and local content requirements as part of the WTO TRIMs Agreement. Investment Requirements: Foreign investors may retain up to 100 percent equity if the firm either exports 50 percent of its output or employs 350 Malaysians full-time. Malaysian companies must be 30 percent Bumipatra (native Malay) owned.