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Malaysia eases curbs on production of small, energy-efficient cars under new auto policy

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KUALA LUMPUR, Malaysia - Malaysia unveiled a new auto policy Monday, offering incentives and easing curbs on the production of small, energy-efficient cars to vie for investment with neighbouring rivals Thailand and Indonesia.

Trade Minister Mustapa Mohamad said new manufacturing licenses will be issued for carmakers producing green vehicles. It is a significant change in policy as the government previously only issued new manufacturing licenses for vehicles with engine size of 1.8 litres and above to protect national car makers Proton and Perodua.

Mustapa said the new auto policy aims to raise total industry production to 1.25 million vehicles and exports to 250,000 vehicles by 2020. Last year, Malaysia's vehicle production was around 570,000 vehicles and exports at 20,000. That was dwarfed by Thailand which makes more than 2 million vehicles a year and by Indonesia with annual production exceeding 1 million.

The policy also aims to double exports of auto parts and components to 10 billion ringgit ($3 billion) by 2020, Mustapa said.

"We want to promote a competitive and sustainable domestic automotive industry. The most important objective is to make Malaysia a regional auto hub for energy efficient vehicles, including the production of hybrids and electric vehicles," he told a news conference.

Malaysia is trying to play catch up with its neighbours. Thailand has a lead with its "Eco Car" program launched five years ago while Indonesia introduced its "Green Car" scheme last year, both focusing on small, fuel efficient cars.

Mustapa said incentives including tax rebates and grants will be offered to manufacturers based on their investment. More than 2 billion ringgit ($603 million) in soft loans will also be offered to promote the development of energy efficient vehicles, he said.

He said there will be no limit on foreign ownership of ventures under the green car program.

"You have this (program) in Indonesia and Thailand too, but we believe ours is more comprehensive. We will open up the whole car market for energy efficient vehicles," he said.

Mustapa said some car models produced by compact car maker Perodua as well as Japan's Honda and Mazda have met fuel efficiency standards to qualify as energy efficient vehicles, and recently announced plans to expand production.

Malaysia was once Southeast Asia's top passenger car market but lost out to Thailand years ago, partly due to policies to protect home grown car brands. Import taxes have dropped under the region's free trade pact but Malaysia imposes excise duties of up to 105 per cent that kept prices of foreign cars high.

Mustapa said the government collected 9.83 billion ringgit ($3 billion) in tax revenue from the auto industry last year, with excise duties accounting for 75 per cent of the total. The industry contributes about 3.4 per cent of gross national product.

Due to the government's high budget deficit, he ruled out any move to cut excise duties but said the government "is open to the possibility of reducing excise duties gradually" if its fiscal situation improves.

The new policy will bring more competition for struggling national carmaker Proton.

Proton's new chairman Mohamad Khamil Jamil told reporters that Proton will implement "new programs in tandem with the new policy" but didn't elaborate. "Proton will continue to survive and God willing, be strong and better."

Once the king of the road in Malaysia, Proton's fortunes have dwindled, with its market share falling to under 30 per cent from more than two-thirds a decade ago due to greater competition.

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