Third National Automotive Policy Coming Soon – More Questions Than Answers?

The Ministry of International Trade and Industry (MITI) is due to announce a new National Automotive Policy (NAP) on January 15.

For a much-hyped industrial policy that aims to reinvigorate our stagnating local automotive manufacturing sector, much of the enthusiasm shown by government-owned mainstream media is not shared by the captains of the automotive sector.

"If the plan is ready, why wait until next year to make it public? What is so special about our industrial policy that it has to be so secretive? If it is ready then just make the document public," said a chief operating officer of a foreign brand.

"Every time the government makes ad-hoc announcements like this without revealing any specifics until many months later, it creates uncertainty in the market and makes consumers weary about reduction in car prices looming ahead," he explained, adding that the wait-and-see attitude among customers may derail his company's sales target for this year.

Many in the mainstream media have repeatedly mentioned about how the third NAP will turn Malaysia into a hub for Energy Efficient Vehicles (EEV).

While newspapers and TV stations are parroting the government's message to promote Malaysia as an EEV hub, a chief executive officer of a Japanese brand told us the simple fact is that nobody can answer a simple question of what is an EEV.

"Our business plans go by timeframes, at least five-years. If we don't even know what is an EEV today, how can we decide on any EEV investments into Malaysia?"

So far the government has only given vague answers describing EEVs as fuel-efficient and low carbon dioxide-emitting vehicles. It has also been said that vehicles will be evaluated according to standards similar to those adopted in Europe.

However, this has created even more questions than answers. With no certified independent testing labs in the country to verify a manufacturer's claim on fuel consumption and exhaust emission, is the government going to give out incentives for EEV models just by virtue of a piece of paper submitted by a car company?

Since the incentives will allow some companies to gain an advantage over others, surely this will cause some friction within the industry if one car company decides to submit a dubious documentation, and the government has no way of independently verifying the manufacturer's claims to mediate any protests from other manufacturers.

Another elephant in the room is with regards to fuel quality. Low emission, low fuel consumption engines require a suitably high grade fuel. How is Malaysia going to promote EEV, whatever form it eventually takes, if our fuel quality remains below par?

The current energy roadmap says Euro 4 grade diesel will be introduced in 2015, but stakeholders are not waiting for it with bated breath; the introduction of clean fuels has been delayed numerous times, with the most recent announcement delaying the introduction of Euro 4M diesels from 2012 to 2015.

When the Ninth Malaysian Plan was announced in 2006, there was a brief mention of the introduction of Euro 3 petrol, without giving any specific time frame. Currently, the standard for petrol remains at Euro 2, while that for diesel remains at Euro 2M.

Even if the government keeps its word and introduce Euro 4 grade diesel in 2015, we are still well behind the standard required by many latest-generation environmentally-friendly engines.

To highlight the growing disparity between Malaysia's green aspirations and the reality of clean engine requirements, Roland Folger, the president and CEO of Mercedes-Benz Malaysia explained that, in Europe, even Mercedes-Benz's commercial truck engines are now sold with Euro 6 emission standards, never mind passenger cars.

"So you can imagine the growing disparity between Malaysia and the rest of the world," said Folger.

Clean fuels cost more to produce and introducing cleaner fuels would force the government to choose between footing an even larger fuel subsidy bill or risking backlash from voters when fuel prices are raised.

Lastly, there is also the question of whether the government has enough political will to terminate Open APs by 2015 as announced in the second NAP in 2009.

In the first NAP in 2006, it was already announced that Open APs will be terminated by 2010. Following heavy pressure from the politically-connected parallel-importers group, the Malay Vehicle Importers and Traders Association (PEKEMA), this was later rescinded.

Irrespective of what is to be announced come January 15, not much is to be expected from 2014 as car companies will need at least six months to put together a plan to take advantage of whatever incentives that are provided under the third NAP.

"2014 is almost gone", said a general manager of a European brand.

"Everyone's done with their budgets. We need at least six to eight months in ordering lead time," he added, explaining that even fully-imported models need lead time for the product planners to plan for a suitable specifications package and to work out the costing with their manufacturing principals.