1 Automotive Industry

Centrally located in the ASEANregion with a population of morethan 500 million people, Malaysiaoffers vast opportunities for globalautomotive and componentmanufacturers to set upmanufacturing and distributionoperations in the country.Pragmatic government policies,political and economic stability,sound economic fundamentals,well-developed infrastructuralfacilities and an educated andskilled labour force have attractedmajor international automotive andcomponent manufacturers toinvest in Malaysia.

The rapid growth of the economyand the high purchasing power ofits population have made Malaysiathe largest passenger car marketin ASEAN. At the same time, theestablishment of national carprojects, PROTON and PERODUA,has transformed Malaysia from amere motor car assembler into acar manufacturer. The industry hasboosted the development ofengineering, auxiliary andsupporting industries andcontributed to skills developmentand the upgrading of technologicaland engineering capabilities. Thesefactors have further enhanced theattractiveness of Malaysia as abase for global automotivemanufacturers.

With a ratio of 200 cars for everyone thousand people, Malaysiaranks among countries with highcar ownership ratio in the region.Toyota, Honda, Ford, MercedesBenz, Volvo, BMW and Peugeotare some of the global automotivecompanies which have set upoperations in Malaysia to takeadvantage of the buoyantconsumer demand. Internationalcomponent manufacturers, suchas TRW, Delphi, VDO, NipponWiper Blade and Bosch have alsomade Malaysia their base tolaunch their products in the region.

ReachingNew HeightsCurrently, there are 28manufacturing and assemblyplants producing passenger andcommercial vehicles, compositebody sports cars as well asmotorcycles and scooters. Theseplants have a total installedcapacity of approximately 890,000passenger and commercialvehicles and about 1 millionmotorcycles per year, withproduction catering primarily forthe domestic market.

The automobile market hasrebounded impressively from theeffects of the Asian financialcrisis of the 1990s. Total vehiclesales reached an all-time high of552,316 units in 2005,surpassing the previous highs of487,605 units in 2004 and404,837 units in 1997. Totalvehicle sales in 2006 were490,768 units.

Technologically, Malaysia hasmade significant progress, withProton unveiling its first locally-designed model in 2000 anddeveloping its own engine in2002. The new PROTON plant inTanjung Malim is highly automated

employing robotic technology,and is designed for high volumeproduction and efficiency, usinglean manufacturing processes.

MalaysiaYour Gateway to the ASEANAutomotive Market

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Malaysia - Production and Sales ofPassenger and Commercial Vehicles

ObjectivesThe overall objective of the NationalAutomotive Policy (NAP) is togenerate sustainable economicvalue creation. This will maximisethe long term contribution of theautomotive industry to the nationaleconomy and at the same timeultimately benefit the Malaysianconsumer. The NAP therefore aimsto facilitate the requiredtransformation and optimalintegration of the national industryinto regional and global industrynetworks. Consequently, theGovernment has set out thefollowing objectives for the nationalautomotive sector:

1. To promote a competitive andviable domestic automotivesector, in particular the nationalcar manufacturers

2. To promote Malaysia as anautomotive regional hub,focusing on niche areas

3. To promote a sustainable level ofeconomic value added andenhance domestic capabilities

4. To promote a higher level ofexports of vehicles as well ascomponents and parts that arecompetitive in the global markets

5. To promote competitive andbroad-based Bumiputeraparticipation in the domesticautomotive sector

6. To safeguard the interests ofconsumers in terms of value formoney, safety and quality ofproducts and services.

To achieve the objectives of theNAP, the Government will:

- provide a comprehensivepackage of grants and incentivesto support the development ofthe domestic automotive sector;

- encourage rationalisation of theautomotive sector to create aleaner and more sustainableindustry structure;

- encourage industry players tocollaborate with external partiesto establish stategic tie-ups:

- encourage existing industryplayers to deepen theircommitment in Malaysia.

The measures to be undertaken bythe Government will open up moreinvestment opportunities for newand existing investors.

National Automotive PolicyExpanding Global Network

3 Automotive Industry

RegionalOpportunitiesunder theASEAN FreeTrade AreaIn line with Malaysia’s commitmentunder AFTA and to encouragecompetitiveness in the automotiveindustry, import duties on CKDand CBU vehicles from ASEANcountries have been reduced to0% and 5% respectively. Forvehicles from non-ASEANcountries, the import duties onCKD vehicles have been reducedto 0-10% while import duties onCBU vehicles were reduced to30%. To maintain governmentrevenue, excise duties are imposedon all vehicles, both locallymanufactured/assembled andimported. The import and exciseduties imposed are as follows:

Trade liberalisation within ASEANhas opened up a vast regionalmarket, providing exportopportunities for automotive andcomponent manufacturingcompanies. Carmakers will alsobe able to source cost-competitivecomponents from ASEANcountries and benefit frompotential economies of scale.

The elimination/reduction of tariffson motor vehicles by theMalaysian government, levelledthe playing field for all automotiveindustry participants. This is clearlyan important step undertaken bythe government towards tradeliberalisation.

While Malaysia has no commitmentto reducing import duty for vehiclesimported from non-ASEAN

countries, in order to be equitable,the Government has also reviewedthe import duty structure onvehicles that are imported fromNon-ASEAN countries.

A GrowingComponentsSectorThe development of Malaysia’sautomotive industry has made thecountry a production centre formajor automotive componentmanufacturers. Today, there aremore than 590 automotivecomponent manufacturers,producing a wide range ofcomponents, such as bodypanels, engine parts, transmissionand steering parts, rubber partsand electrical and electronic parts.In 2006, the sub-sector generatedsales of RM 5.2 billion, whileimports amounted to RM 4.08billion and exports RM 1.8 billion.

Imports from non-ASEAN countries

Import Duties Excise Duties

CKD vehicles 0 - 10% 60 - 125%

CBU vehicles 30% 60 - 125%

CKD motorcycles 0 - 10% 20 - 50%

CBU motorcycles 30% 20 - 50%

Imports from ASEAN countries

Import Duties Excise Duties

CKD vehicles 0% 60 - 125%

CBU vehicles 5% 60 - 125%

CKD motorcycles 0% 20 - 50%

CBU motorcycles 5% 20 - 50%

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Among the major componentmanufacturers are foreignmultinationals, such as DelphiAutomotive Systems, TRW,Siemens VDO, Bosch and NipponWiper Blade while local companiesinclude APM Automotive, Sapura,Delloyd and Ingress.

In addition to supplying to the localoriginal equipment market, anincreasing number of componentmanufacturers are exporting theirproducts, especially to ASEANcountries. Taiwan and Germany arealso among the major exportdestinations.

The global trend in automotivemanufacturing – the modularsystem – is also fast gainingprominence in Malaysia. Proton has taken the lead in implementingthis modular system with themanufacture of the Proton Wajamodel. Some of the modulemanufacturers include TRWAutomotive, Hicom Teck SeeManufacturing, APM IndustriesHoldings, Delphi Packard Electric,Malaysian Automotive Lighting,Autoliv Hirotako Safety and SapuraAutomotive.

Sales,Imports And ExportsOf Malaysia Motor VehicleComponents and Parts (RM billion)

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Benefitingfrom StrongEngineeringSupportingIndustriesThe engineering supportingindustries have developed intandem with the development ofthe manufacturing sector. Therapid development of the mouldand die, metal casting, machining,metal stamping, surfacetreatment, finishing and heattreatment industries in Malaysiaaugurs well for the development ofthe automotive industry.

Mould & Dies

There are about 20 mould and diecompanies which cater to theautomotive industry. Thesecompanies can manufacturespecific types of moulds, dies andtooling to meet the needs of theindustry.

Metal Casting

The metal casting industry,comprising sand casting, die-casting and investment casting,has developed into a major supplysource supporting the automotiveindustry. Currently, about 10 die-casting companies supply theautomotive industry with die-castparts and components, such asfront and rear wheel hub, front andrear brake panel and alternatorhousing and engine parts such ascrank case, crank case cover andcylinder head cover.

Machining

There are over 50 companiesundertaking specialized precisionmachining and over 100 smallmachining workshops. Some ofthese companies possess state-of-the-art machining centres with

capabilities to machine minuteprecision gears and shafts forengine and transmission parts.

Metal Stamping

Metal stamping, another importantsupporting industry for theautomotive industry, is a well-established industry in Malaysia,with over 300 companies inoperation. A number of thesecompanies undertake secondaryprocesses, such as electroplatingor spray painting and surfacefinishing treatment of stampedparts and components.

Metal SurfaceTreatment/Finishing

The metal surfacetreatment/finishing industry, withover 35 companies in operation,provides a variety of platingservices, such as batch andcontinuous electroplating,precision electroplating, electrolessplating, functional electroplating,cathodic electrodeposit,dacrotised treatment,phosphating, passivation,anodizing and chromating.

Heat Treatment

In the heat treatment serviceindustry, there are over 20companies in operation, offering arange of services, coveringcontinuous mesh-belt heattreatment, vacuum hardening,carburizing, carbonitriding,nitriding, annealing and tempering

for a diverse range of products.Heat treatment services for highcarbon steel and alloy steelmaterials, such as critical parts forbearing and automotivecomponents, are the latestaddition to the range of servicesprovided.

A ConduciveInvestmentEnvironmentAgainst a backdrop of steadyeconomic growth, highlydeveloped infrastructure and pro-business government policies,Malaysia provides a conduciveenvironment for manufacturingactivities.

Malaysia is one of the fastestgrowing economies in the regionwith gross domestic productgrowing at an average of over fivepercent in the 1980s and overseven percent in the 1990s. GDPgrowth in 2006 was 6%.

The world-class Kuala LumpurInternational Airport, well-equipped seaports and anextensive road and rail networkform the backbone of an efficienttransport system which are vital tothe development of the economy.

Malaysia’s workforce is multi-cultural, multi-lingual (Englishspeaking), well-educated andamong the most dynamic andcompetitive in the region.

The Malaysian Economy - Key Statistics (2006)

Population 27.2 million

Total labour force 10.3 million

GDP Growth rate 6.0%

Per capita income US $5,145 (Current prices)

Car ownership ratio 1:5

VastInvestmentOpportunitiesCommitted to the developmentof the automotive industry,Malaysia offers vast andattractive opportunities forinvestors. The Malaysiangovernment encouragesinvestment in areas such as:-

• Critical components (egengines, transmissions andchassis)

• Auto electroniccomponents (eg. Enginemanagement system andvehicle intelligence system)

• Fuel efficient engines andalternative fuel engines.

• Modularmanufacture/systemsintegration

• Research anddevelopment, which willenhance domestic technicalskills and engineeringcapabilities.

AttractiveIncentivesTo encourage continuedinvestments in the automotiveindustry, Malaysia offersattractive tax incentives toautomobile and componentmanufacturers. Among themajor incentives provided are:

• Pioneer Status withpartial/full exemption fromthe payment of income taxfor 5 or 10 years

• Investment Tax Allowanceof 60% of qualifying capitalexpenditure incurred withinfive years from the date thefirst capital expenditure wasincurred

• Pioneer Status with full faxexemption from payment ofincome tax for 5 years orInvestment Tax Allowanceof 60% of qualifying capitalexpenditure incurred withinfive years deducted against100% of statutory incomefor the manufacture ofautomotive componentmodules

Total Motor Vehicle Sales in the 4 Major ASEAN Countries

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• Incentives for IndustrialLinkage

• Incentives for Research andDevelopment

• Incentives for Training

• Incentives for Export

• Incentives for InternationalProcurement/RegionalDistribution Centres

• Special package ofincentives (pre-package/customised) aregranted for selectedprojects.

With a strong domestic carmarket, coupled with aconducive investmentenvironment, Malaysia certainlyhas the right elements in placeto forge ahead in becomingthe region’s automotive hub.

SomeSuccessfulForeignAutomotiveandComponentCompaniesalready inMalaysia

Honda Malaysia Sdn.Bhd. is a joint-venturebetween Honda Motor Co.Ltd. of Japan (51%), DRB-HICOM Berhad (34%) andOriental Holdings Berhad(15%). It assembles HondaCity, CR-V, Civic and Accordand manufactures CVJ(Constant Velocity Joint) in itsplant in Pegoh, Melaka. The

plant has a productioncapacity of 20,000 units ofmotor vehicles and 80,000 carsets of CVJ components peryear. The CVJ are for both thedomestic and export markets.The company also undertakesPDI (pre-delivery inspection)operations before theassembled units are distributedto Honda dealers nationwide.The company employs over1300 employees, and has astrong and dedicated dealernetwork totaling 54nationwide. In line with its goalto provide the best customerservice, the company has adedicated parts warehouselocated in Klang, Selangor.

BMW Group Malaysiaencompasses BMW MalaysiaSdn. Bhd. and BMW AsiaTechnology Center Sdn. Bhd.Its activities cover the

wholesale of BMW cars, spareparts and accessories, as wellas the overall planning of sales,marketing, after-sales, andother related activities inMalaysia. BMW AsiaTechnology is responsible forthe operations of the group’sData Centre In Cyberjaya andthe Parts Distribution Centre inthe Port of Tanjung Pelepas.Retail sales of BMW and MINIcars fall under the purview ofauthorized BMW dealers.BMW Malaysia’s dealershipnetwork covers 13 showroomsand workshops in various citiesin Malaysia.

BMW Malaysia Sdn. Bhd. is ajoint venture betweenBayerische Motoren Werke(BMW) AG, manufacturer ofBMW vehicles based inMunich, Germany and SimeDarby Group.

DaimlerChryslerMalaysia (DCM) Sdn.Bhd. a joint venture companyformed in 2003, wasestablished to manage thewholesale distribution ofMercedes-Benz passengercars, commercial vehicles andspare parts, as well asadditional services in the fieldof software development forglobal sales solutions andautomotive apprentice training.Since 2004, DCM hasexpanded its brand portfolio toinclude the wholesaledistribution of smart passengercars, Maybach passenger carsand Mitsubishi FusoCommercial Vehicles.

DCM has also expanded itsoperations to include theestablishment of:

• Joint assembly operationsin Pekan, Kuantan

• Apprentice Training Centreand Vehicle PreparationCentre in Shah Alam,Selangor

• Automotive Spare PartsWarehouse in Shah Alam,Selangor

Today, Mercedes-Benz C, Eand S-Class are locallyassembled, adhering to thesame high quality expected ofthe marque globally. Thestrategic partnership for a jointassembly operation with DRB-HICOM, has resulted in DCMhaving the largest productrange in locally assembledpassenger car and commercialvehicles in the ASEAN region.DCM also manufacturerscommercial vehicles, consistingof Mercedes-Benz buschassis, prime movers such asActros trucks as well asMitsubishi Fuso commercialvehicles. The company alsoimports other niche models,such as the Mecedes-Benz A-Class, M-Class, CLK, SLK, SL,C-Class Sport Coupe,Maybach, and smart.

Denso (Malaysia) Sdn.Bhd., established in 1980, istoday one of the largestautomotive componentmanufacturers in Malaysia. Apioneer in the development ofmany products, Denso(Malaysia) focuses on themanufacture of air-conditioningsystems: cooling units,condensers, compressors andevaporators; engine

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management systemcomponents: starter motors,alternators and radiators; andinstrument clusters and others:meters, windshield wipers,windshield washers, powerwindow motors, hors, flashersand relays. In addition to being a major automotivecomponent supplier to thenational car projects, thecompany also exports itsproducts to Indonesia,Thailand, Taiwan, Philippines,Australia, Japan and theUnited States of America.

TRW Automotive, aworld leader in steering andsuspension systems andnumber one in the globalmarket for electric steeringsystems, established TRWSteering and Suspension(Malaysia) Sdn. Bhd. in 1992to manufacture steering gearboxes. Today, it has diversifiedinto the manufacture of tierods,tierod ends, suspension ball

joints, stabilizer bars, steeringcolumns, steering linkages aswell as cold forged parts andcomponents for motor vehiclebraking system.

Nippon Wiper Blade(M) Sdn. Bhd., a 100%Japanese-owned company,manufactures wiper arms andblades for both OEM and aftersales markets. The companyhas established itself as aworld-class manufacturer ofwiper blades and arms, andcurrently, more than 80% of itsproducts are exported, withthe major markets being theUnited States, Japan andEurope. The company’sproducts are used by majorautomotive manufacturers,such as Toyota, Daihatsu,

Honda, Nissan andDaimlerChrysler in their globaloperations.

Malaysia AutomotiveLighting Sdn. Bhd. isengaged in the research,design, development andmanufacture of exteriorautomotive lightings andcomponents, making it theonly location for research anddevelopment activities in theAsia -Pacific region. Thecompany exports more than60% of its production, mainlyto Japan and Thailand forMazda, Suzuki, Isuzu andDaimlerChrysler while itsdomestic customers are mainlyPROTON and PERODUA.

MIDA’s HeadquartersMalaysian Industrial Development Authority, Plaza Sentral, Jalan Stesen Sentral 5, 50470 Kuala Lumpur, Malaysia

Tel: (603) 2267 3633 Fax: (603) 2274 7970 E-mail: promotion@mida.gov.my Website: www.mida.gov.my

MIDA’s Overseas Offices

ASIA-PACIFIC

AustraliaDirectorMalaysian Industrial DevelopmentAuthorityLevel 3, MAS Building16 Spring StreetSydney NSW 2000, AustraliaTel: (612) 9251 1933Fax: (612) 9251 4333E-mail: midasyd@bigpond.net.au

JapanDirectorMalaysian Industrial DevelopmentAuthority4th Floor, Aoyama 246 Building5-6-26, Minami-Aoyama, Minato-KuTokyo 107-0062, JapanTel: (813) 3409 3680 / 3681Fax: (813) 3409 3460E-mail: midatokyo@midajapan.or.jpWebsite: www.midajapan.or.jp

DirectorMalaysian Industrial DevelopmentAuthority3rd Floor, Takahashi Building 5-9-3, Nishi-Tenma, Kita-ku Osaka 530-0047, JapanTel: (816) 6313 3121 / 3221Fax: (816) 6313 3321E-mail: midaosaka@mida.or.jp

Korea Republic ofCounsellor (Investment) Embassy of Malaysia (Investment Section) 17th Floor, SC First Bank Building100, Gongpyung-dongJongro-guSeoul 110-702Republic of Korea Tel: (822) 733 6130 / 6131Fax: (822) 733 6132E-mail: midasel@chollian.net

People’s Republic of ChinaConsul (Investment) Consulate General of Malaysia(Investment Section) Unit 807-809, Level 8, Shanghai KerryCentre,No.1515, Nanjing Road (West)Shanghai 200040People’s Republic of ChinaTel: (8621) 6289 4547

(8621) 5298 6335Fax: (8621) 6279 4009E-mail: midash@online.sh.cn

TaiwanDirector (Investment Section)Malaysian Friendship & Trade Centre8th Floor, San Ho Plastics Building102, Tun Hua North Road,TaipeiTaiwanTel: (8862) 2713 2626Fax: (8862) 2514 7581E-mail: midatpe@ms18.hinet.net

EUROPE

FranceDirectorMalaysian Industrial DevelopmentAuthority42, Avenue Kleber75116 ParisFranceTel: (331) 4727 3689 / 6696Fax: (331) 4755 6375E-mail: mida.paris@wanadoo.fr

Germany, Federal Republic ofDirectorMalaysian Industrial DevelopmentAuthority6th Floor, Rolex HausDompropst-ketzer Str.1-950667 CologneFederal Republic of Germany Tel: (49221) 124 008 / 009Fax: (49221) 136 198E-mail: mida.cologne@t-online.de

ItalyConsul (Investment)Consulate of Malaysia(Investment Section)4th Floor, Via Vittor Pisani,3120124 MilanItaly Tel: (3902) 3046 521Fax: (3902) 3046 5242E-mail: midamln@tin.it

SwedenEconomic Counsellor Embassy of MalaysiaKarlavagen 37P.O. Box 26053S-10041 StockholmSwedenTel: (468) 791 7492 / 440 8400Fax: (468) 791 8761E-mail: mida@malemb.se

United KingdomDirectorMalaysian Industrial DevelopmentAuthority17 Curzon StreetLondon W1J 5HRUnited KingdomTel: (4420) 7493 0616Fax: (4420) 7493 8804E-mail: midalon@btconnect.com

NORTH AMERICA

Los AngelesConsul (Investment)Consulate General of Malaysia (Investment Section) 550, South Hope Street, Suite 400Los Angeles, California 90071United States of AmericaTel: (1213) 955 9183 / 9877Fax: (1213) 955 9878E-mail: lacamida@aol.com

San JoseDirectorMalaysian Industrial DevelopmentAuthority226, Airport ParkwaySuite 480, San JoseCalifornia 95110United States of America Tel: (1408) 392 0617 / 8Fax: (1408) 392 0619E-mail: midasanjose@aol.com

ChicagoDirectorMalaysian Industrial DevelopmentAuthorityJohn Hancock Centre, Suite 1515875, North Michigan AvenueChicago, Illinois 60611United States of America Tel: (1312) 787 4532Fax: (1312) 787 4769E-mail: mida@midachicago.org

New YorkConsul (Investment) Consulate General of Malaysia(Investment Section)313 East, 43rd Street New YorkNew York 10017United States of America Tel: (1212) 687 2491Fax: (1212) 490 8450E-mail: mida@midany.org

BostonDirectorMalaysian Industrial DevelopmentAuthority One International Place, Floor 8Boston, MA 02110United States of America Tel: (1617) 338 1128 / 1129Fax: (1617) 338 6667E-mail: midaboston@aol.com

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Transport & Metal Industries DivisionMalaysian Industrial Development AuthorityBlock 4, Plaza Sentral, Jalan Stesen Sentral 5Kuala Lumpur Sentral50470 Kuala Lumpur, MalaysiaTel: 603 2267 3633Fax: 603 2274 8470 E-mail: transport@mida.gov.myWebsite: www.mida.gov.my

August 2007

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