Malaysia relaxes restrictions on foreign small-car companies

Article by Anita Panait, on January 23, 2014

Malaysia has relaxed constraints on foreign carmakers building small and eco-friendly passenger vehicles. According to M. Madani Sahari, chief executive of the Malaysia Automotive Institute, the country will selectively look for foreign investments that bring advanced technology and target to offer customized incentives to attract foreign carmakers. Malaysia Automotive Institute is a unit of the country’s trade ministry. Under Malaysia’s previous policy, the manufacturing licenses only allowed for the production of vehicles bearing engines 1.8 liters or bigger.  Madani said that the relaxation of restrictions means “a big deal” since previously they didn't issue any licenses for the production of small cars. The Malaysian government is looking to attract carmakers that have still to set up major production sites in Southeast Asia for passenger cars, like Volkswagen Group, Renault, Hyundai Motor Co., Fiat Group and some Chinese carmakers, according to Madani.

The new policy, however, increases the susceptibility of local carmaker Proton Holdings to foreign competition. Malaysia’s move to attract global carmakers comes at a time when Southeast neighbor Thailand is struggling with protests that seek to dethrone Prime Minister Yingluck Shinawatra's government. Kyoichi Tanada, president of Toyota Motor Corp.'s Thai unit, remarked that the political unrest in the country may hurt new investments as investors start to consider investing in other nations like Indonesia and Vietnam.

"For those who are here, we won't flee," Tanada said. "But we are not sure whether we will raise our investment." According to International Trade and Industry Minister Mustapa Mohamed, Malaysia is holding discussions with three carmakers. He said that they may award up to four permits by 2018, adding that the move will help promote a "competitive and sustainable domestic automotive industry, including the national automotive companies."

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