This article first appeared in The Edge Financial Daily on June 12, 2018

KUALA LUMPUR: The government has been urged to think through thoroughly the idea of establishing a new national car company. According to economists and others observers, when driving into the new car venture trail, Putrajaya should take into account various factors such as the feasibility of adding capacity in the car assembly market, retail car prices, export strategy and new car technology.

Centre for Public Policy Studies chairman Tan Sri Ramon Navaratnam said Malaysia should learn from the past mistakes it had with Proton before proceeding with new investments.

“It is always good to conceptualise new ideas, but it must be practical and beneficial to the Malaysian economy as a whole, and its people. We have had Proton ‘saga’ and we have experienced major problems in the past,” Navaratnam told The Edge Financial Daily.

“If there is a mutual gain and solid business model, then I say the country will welcome all potential new investments as long as there are rewards to be reaped,” he said.

On Sunday, Prime Minister Tun Dr Mahathir Mohamad said he is mulling starting a new national car company, after Proton Holdings Bhd’s takeover by China’s Zhejiang Geely Holding Group Co Ltd.

“Our ambition is to start a [new] national car with partners in the region,” Dr Mahathir said during a dialogue at the Nikkei Conference on the Future of Asia in Tokyo. He said the partners could be from countries such as Thailand, South Korea or Japan.

Crewstone International Sdn Bhd chairman Datuk Wira Jalilah Baba said the government needs to undertake a detailed feasibility study before embarking on the new venture, taking into account the supply and demand, as well as the potential multiplier effects.

Jalilah, who is the former chief executive officer and director-general of the Malaysian Investment Development Agency (Mida), pointed out that Malaysia, with a population of 32.4 million, is not a big market.

“The entry of the new car will definitely bring down the car price, but overall, the Malaysian market is not huge. The government needs to assess the type of auto investors that they want to bring here,” she said.

On the supply side, Jalilah said the government should look into the production cost, given the excess capacity in the car assembly market.

“If the new player wants to set up a new manufacturing plant, ignoring the current excess capacity, then we must reassess this. From what I know, there is an excess capacity in the car assembly market and car manufacturers are not running their production at optimum levels,” she said.

Turning to the demand side, Jalilah asked: “Do we have large market to absorb the cars?”

Given a small market that is crowded with many auto players, Jalilah said the government should assess the country’s export strategy, particularly if it wants to position Malaysia as the centre of a future car manufacturing hub catering for the regional market.

At the same time, Jalilah said the government should also review some restrictions in the car market such as the approved permit (AP) requirement and import duty, which are often seen as the factors that drive the car prices up.

“One AP will cost a bomb, and it is not easy to get the permit. Plus, the cost of importing the completely built-up cars is beyond the normal means of ordinary Malaysians,” she pointed out. “All of this must be taken into account.”

As for the technology, Jalilah asked whether the government’s planned auto venture will roll out more green and energy-efficient vehicles such as electric or hybrid cars.

“Currently, there are not enough charging stations in the country and there is still many miles to go for the country to ready the relevant infrastructure to support electric cars,” she said. “All these factors must go hand in hand.”

Nevertheless, Jalilah said the idea to start a third national car company is still a good one, given the potential job creation, transfer of technology, and healthy competition that will push the car prices down.

Institute for Democracy and Economic Affairs (Ideas) is opposed to any direct involvement of the government in a national car project.

Its analyst Adli Amirullah said the government should have minimum participation in any future business investments. “We welcome the government to forge partnerships with international manufacturers. However, I want to emphasise that the government has no business to be in the business,” he said when contacted.

Meanwhile, MCA deputy president Datuk Seri Dr Wee Ka Siong said starting a third national car company would not be the right strategy for the new government, as the nation should not be burdened by the “new colossal project”, which could incur a start-up cost to the tune of multimillions in ringgit.

“Starting a third national car company and to ensure its success can only mean reverting back to higher protectionism, which will result in higher car prices across the board,” he said in a statement, noting that Proton was estimated to have cost ordinary Malaysians up to RM300 billion over the past decades from much higher car prices for all cars and the correspondingly higher financing costs.

Instead of funding for a new car venture, Wee said the Mahathir-led government should prioritise public transportation projects, as opposed to private car ownership.

With the existence of Proton and Perodua, Wee said, “most Malaysians would prefer the Pakatan [Harapan] government to restart public transportation projects instead of starting another car company and being burdened by higher car prices again.”

If a new national car is set up, it would be the country’s third after Proton and Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

Dr Mahathir, who was behind the establishment of Proton in 1983, was stronghly critical of the decision to sell Geely a 49.9% stake in the national car firm. The sale was supported by the previous government.

Proton had been suffering losses for years despite billions of ringgit in financial assistance from the government. It was taken private by the DRB-Hicom Bhd group in 2012 but was still regarded as a national car.

After taking over the country’s leadership in the May 9 general election, Dr Mahathir said the new government would not push for Malaysia to buy back Geely’s shareholding in Proton. He said any decision to buy back was up to DRB-Hicom and its main shareholder billionaire Tan Sri Syed Mokhtar Al-Bukhary.