KUALA LUMPUR: The Open approved permit (AP) policy has the potential to benefit Malaysia's automotive industry by increasing competition, providing more choice for consumers, and boosting the local economy.
However, economists believe that there are also concerns about the potential risks of the policy, such as new companies entering the market without proper experience or capital, which could disrupt the industry.
The Investment, Trade, and Industry Ministry (Miti) yesterday announced that eligible Bumiputera companies with no experience in automotive activities can apply for Open AP for the import and sale of vehicles in Malaysia, effective July 1, 2024.
Eligible companies are those that are 100-per cent Bumiputera-owned; a private limited company; have a minimum paid-up capital of RM1 million; and have been in operations for at least two years. The ministry said the implementation of this policy is expected to attract more Bumiputera companies to venture into the automotive industry. It noted that the increase in the number of companies will make this segment more competitive and dynamic.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the implementation of Open AP policy will encourage further competition and transparency in the market place.
He added that consumers would also have more choice and prices can be competitive which should also encourage innovation among businesses.
"However, there are some risks associated with this policy, particularly concerning how the new entrant to the industry might impact existing players. "So, the government need to ensure that they have the avenue to improve their product offering and services," he told Business Times.
Afzanizam also stressed that the government needs to ensure that new entrants are really up to the mark in terms capacity and skillset.
Therefore, he said the government must ensure that only those who has the right skill, capacity and technical know-how is allowed to enter the markets.
"Ultimately is about fair business, transparent and efficient market. All these three are within the government control," he noted.
Meanwhile, Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan said given the numerous players in the reconditioned car market in Malaysia and the wide array of choices available to consumers, it could benefit consumers more due to increase competition among companies.
He added that this competition is likely to offer a greater variety of reconditioned cars and possibly lower prices.
"However, it's important to note that consumer preferences vary significantly between reconditioned, new, and second-hand cars. "Hence, I believe the economic cycle will continue, albeit with potential challenges for these three vehicle categories—new, reconditioned, and second-hand cars," he said.
Azmi believes that overall, having more players in the market will be beneficial for the economy and the automotive sector.
He noted that the introduction of APs was intended to protect the local automotive industry, although with the open AP system, this protection still exists, albeit with easier application processes for foreign companies.
He said this adjustment is not necessarily detrimental to the automotive sector or national car manufacturers, adding that the consumer segments for reconditioned cars, new cars, and used cars are distinctly different, which mitigates direct competition.
Speaking of the risks involved, Azmi said that the minimal requirements for new companies entering the business could lead to an influx of inexperienced applicants merely capitalising on what appears to be a lucrative opportunity.
He said such ventures may struggle to sustain themselves due to the substantial capital investment required.
"Despite these potential limitations, I believe the government's intention behind the open AP policy is commendable, aiming to encourage more diverse participation in the automotive industry. "This initiative could potentially elevate local companies beyond selling reconditioned cars to manufacturing new vehicles, thereby fostering industry growth through strategic use of the AP policy," he added.
Economist Dr Geoffrey Williams said APs have been a major market entry barrier for many years so easing this restriction will help to open up the automotive sector and make it more competitive.
It will provide more choice for consumers and should help to make vehicles more affordable.
This should create a more agile, competitive and creative eco-system and help improve market-driven innovations and access to new models more quickly.
It will help the automotive sector grow because local providers are now strong enough to compete.
There are risks that imported vehicles will gain market share but the government should wait, allow the changes to bed down and see what the effects are before interfering too early.