KUALA LUMPUR, Malaysia (Bloomberg) -- Malaysia has relaxed restrictions on foreign automakers manufacturing small and eco-friendly passenger vehicles as Southeast Asia's third-largest economy competes with Thailand for investments.
Malaysia will selectively seek foreign investments that bring advanced technology and aim to offer customized incentives to attract companies, according to M. Madani Sahari, CEO of the Malaysia Automotive Institute, a unit of the trade ministry. Under the previous policy, the manufacturing licenses only allowed for the output of vehicles that had engines 1.8 liters or bigger, he said.
"This is a big deal because previously we didn't issue any licenses" for the manufacture of small cars, Madani, whose unit was involved in drafting the government policy, told reporters in Kuala Lumpur last week.
The government is seeking to attract automakers that have yet to establish major manufacturing facilities in Southeast Asia for passenger cars, including Volkswagen Group, Renault, Hyundai Motor Co., Fiat Group and some Chinese companies, according to Madani.
Effective immediately, the new policy further opens up domestic carmaker Proton Holdings to foreign competition. The drive to attract global automakers also comes at a time when neighbor Thailand is mired in political protests aimed at ousting Prime Minister Yingluck Shinawatra's government.
Thailand's unrest may hurt new investments as investors consider other countries such as Indonesia and Vietnam, Kyoichi Tanada, president of Toyota Motor Corp.'s Thai unit, told reporters in Bangkok today.
"For those who are here, we won't flee," Tanada said. "But we are not sure whether we will raise our investment."
Malaysia is in talks with three foreign manufacturers for fuel-efficient cars, International Trade and Industry Minister Mustapa Mohamed told reporters in Kuala Lumpur today, without naming them. As many as four permits may be awarded by 2018, the minister said.
The changes will help promote a "competitive and sustainable domestic automotive industry, including the national automotive companies," said Mustapa.
"Proton does not lose out on the incentives under the National Automotive Policy, while bracing itself for further liberalization," Thomas Soon, an analyst at AMMB Holdings, said today.
Malaysia wants to position itself as a manufacturing hub for energy-efficient vehicles to differentiate the country from Thailand, where foreign automakers have invested to produce pick-up trucks and other vehicles, Madani said.
"By focusing on energy-efficient vehicles, we are also at the same time making Malaysia a center for excellence in technology," he said.
Vehicle prices may fall in Malaysia by as much as 30 percent by the end of 2018 as a result of local production by global automakers and other government initiatives, he said.
Sales of passenger and commercial vehicles rose 5 percent to 595,300 units in the 11 months ended November, according to the Malaysian Automotive Association.