Government must focus on auto industry’s value creation

 

As is customary at the end of each year, journalists and stockbroking analysts are busy churning out their 2022 ‘trade year-enders’.

As always, the automotive sector attracts its fair share of attention.

Much is written about the state of the industry, with plenty of focus given to its “Total Industry Volume” (TIV), the technical term used to measure new car sales for the year.

Again, much agonising has gone into how much the TIV grew this year – whether it was by one or two per cent.

The fact is that the Malaysian automotive industry is stuck in a rut, with its TIV having stagnated at around 600,000 for almost a decade.

Arguing over whether car sales have gone up or down by 10,000 or 20,000 units a year sidesteps the fundamental truth that Malaysia’s automotive industry is trapped by a blanket fuel subsidy which is fiscally unsustainable.

It also makes Thailand, where fossil fuel is unsubsidised, a far more attractive high-technology investment destination.

There’s also the baggage of the national car and the protectionism embedded in policy documents such as the National Automotive Policy.

At the Malaysia Motor Expo last month, we had the opportunity to ask Frank Steinleitner, a 24-year veteran of the auto industry both in Malaysia and South Korea, for his opinion.

Here is what he had to say.

“The local automotive industry has not shown any significant volume growth, and while Malaysia’s TIV has stagnated over the last decade, Thailand’s domestic sales for the past 11 months increased by 14.7 per cent to 766,000 units, while production for domestic and export sales increased by 12.6% to 1.7 million units.

“Even Vietnam, which introduced its first local car, Vinfast, now has a range of SUV electric vehicles (EV) for the US and European markets,” said Steinleitner.

He said that Malaysia’s automotive industry has lost its direction, giving undue focus to developing local brands and assembly operations.

“There are very few CKD assembly operations worldwide – mainly in developing countries – with limited models and little-to-no consumer choice,” he adds.

Steinleitner says manufacturers nowadays tend to outsource their costly logistical “part-by-part business” and assembly operations merely to fulfil the minimum local requirements set by the governments.

“Hence, CKD inevitably means more expensive cars with longer delivery time for consumers,” he says.

Quoting Volkswagen group CEO Thomas Schaefer, Steinleitner told us that even Germany and the European Union are rapidly losing their attractiveness and competitiveness on the international stage, while the USA, Canada, China, Southeast Asia and regions like North Africa are forging ahead.

“Europe lacks price competitiveness in many areas, particularly when it comes to the cost of electricity and gas.

“Unless these countries manage to reduce energy prices quickly and reliably, investments in energy-intensive production or new battery cell factories in Germany and the EU will become practically unviable, and value creation in these areas will take place elsewhere,” said Steinleitner.

At the moment, Malaysia’s proposed switch to EVs faces multiple challenges, he said. Nevertheless, opportunities still exist for a reconsideration of the current market structure.

“Many new EV car brands are emerging out of Asia with new design elements suited to the Asian taste. The design trend is expected to move from SUVs to ‘People Movers’.

“The supporting supply industry could also move from local content to battery content,” said Steinleitner, noting with interest that companies from South Korea and China engaged in this sector have recently invested in Malaysia.

He said the government would do well to relook the automotive industry’s value creation, instead of simply replacing the CKD engine assembly with a CKD battery assembly.

Perhaps new finance minister Anwar Ibrahim and economy minister Rafizi Ramli will bring fresh ideas to awaken Malaysia’s automotive industry from its decade-long slumber.

Biodata of Frank Steinleitner:

• 1999 to 2006: Founder-CEO of DaimlerChrysler Malaysia (now Mercedes Benz Malaysia)
• 2005: NST-Cars Bikes Trucks Automotive Man of the Year.
• 2006 – 2008: Director at Daimler AG, Stuttgart, Germany.
• 2009 – 2016: Consultant to the automotive supply industry in Malaysia.
• 2017 – 2022: CEO of Lamborghini and Porsche dealer in Seoul, Korea.

 - FMT

Yamin Vong may be contacted at yaminvong@gmail.com.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.