The Development of the Automobile Industry and the Road Ahead

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© 2004 Department of Statistics Malaysia
The Development of the Automobile Industry and the
Road Ahead
Mohd. Uzir Mahidin and R. Kanageswary
This paper discusses the development of the automobile industry in Malaysia in terms of production and sales of motor vehicles. The Malaysian Automotive Policy has been the key impetus for the development of automobile industry leading to the dominance of the national car in the ASEAN motor vehicle market since 1998.

However in 2003, Malaysia fell to second place after Thailand in the motor vehicle market of ASEAN. Therefore, a comparative study is undertaken to asses the development of automobile industry of both Malaysia and Thailand.

The development of the automobile industry in Malaysia
In the 1960s, the Malaysian government encouraged the
setting up of automobile assembly plants in Malaysia. The
main objectives were to reduce the imports of completely
built-up units (CBU) that will help to stabilize balance of
payments, to create employment and to provide the base for
transfer of technology. In the 1970s, the “Local Content
Policy” was promoted to enhance the development of local
parts and components industry.
The historical moment for the automobile industry was in 1985 when the first national car, Proton Saga, made its debut.
Proton’s entry into the local automobile industry has
restructured the industry from an assembly phase to
manufacturing phase. In 1994, the second national car,
Perodua Kancil made its debut.
The implementation of the national car projects was a step
towards the development of an integrated motor vehicle
Mohd. Uzir Mahidin and R. Kanageswary
industry. The projects have contributed to the growth of the local component industry, as attested by the presence of 350 component manufacturers in Malaysia, of which 234 are
Proton vendors and 135 are Perodua vendors. The national
car projects had also attracted new car manufacturers to set up their manufacturing bases in Malaysia to penetrate the
ASEAN markets, paving the way to support the nation’s
industrialization programme. Currently, there are four national car manufacturers, ten non-national vehicle assemblers and
three composite body sports car makers in Malaysia.
Renowned cars such as Mercedes, Honda, BMW, Ford,
Volvo, Toyota and Hyundai are also being assembled locally.
So far the automobile industry has succeeded in fulfilling the government’s industrialization efforts to enhance the country’s economy. This is shown in Table 1. The electronic and
transport equipment industries have been the main catalyst
for the development of the manufacturing sector over the
years in Malaysia. The table explains the percentage share of each of the 17 major groups of industries in the manufacturing sector at constant 1987 prices from 1995 to 2003.
Table 1 shows that from the year 1996 onwards, the transport equipment industry has been a prominent double-digit
contributor to the manufacturing sector. However, there was a decline in the year 1998, as the economy was affected by the financial crisis. The production volume of the automobile
industry was low in tandem with the economic situation. From 1999 onwards, the transport equipment industry resumed its
double-digit contribution to the manufacturing sector. The
transport equipment industry’s achievement of higher value added over the years was due to a remarkable increase in the production volume of the automobile industry.
The Development of the Automobile Industry and the Road Ahead 3
Table 1: Percentage share of manufacturing industries
at constant 1987 prices, 1995'' 2003
Kind of Economic Activity 1995 1996 1997 1998 1999 2000 2001 2002e 2003p Vegetable & animal oils & fats 2.7 2.3 2.8 3.1 4.4 3.8 4.3 4.3 4.5 Other food processing, beverages &
tobacco 7.8 7.7 7.7 8.2 6.8 6.0 6.4 6.2 6.2
Textile, wearing apparel & leather
products 5.1 4.4 4.4 4.5 3.8 3.5 3.4 3.1 2.9
Wood products including furniture 6.7 6.6...
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