AFTA opens door for auto assemblers, dealers

AFTA opens door for auto assemblers, dealers

Eileen Ng, Agence France-Presse, Kuala Lumpur

Foreign automakers have reason to smile about the opening of
markets in Southeast Asia under a regional free trade plan but
local assemblers and distributors are sporting deep frowns.

In anticipation of the Association of Southeast Asian Nations
(ASEAN) Free Trade Area (AFTA), foreign manufacturers have begun
phasing out franchises in order to cut out middlemen and boost
their direct presence in the region.

The shake-up in the region's auto industry, especially in
Malaysia, has spread gloom amongst local firms which have for
years relied heavily on distributing rights for their survival.

"We are doomed," lamented a senior official at a car
distribution firm in Kuala Lumpur.

"AFTA is bad news for us. Foreign manufacturers have raised
their investment in the region ahead of AFTA to establish their
presence and are taking back their franchises. Many of us will go
bust."

This trend is not unique to the region and is partly due to
the consolidation of the global car industry, which is forcing
manufacturers to improve margins, said the official, who declined
to be named.

Malaysia is among the top four auto markets in ASEAN, along
with Thailand, the Philippines and Indonesia.

Tariffs of between 10 and 40 percent for cars and components
will be slashed to below five percent under AFTA by January,
except in Malaysia which has delayed its move until 2005 to give
its national car industry more time to adjust.

Japan's number two carmaker Honda Motor Co. started the ball
rolling in July 2001 when it withdrew the exclusive rights for
local firm Oriental Holdings to distribute cars in Malaysia,
Singapore and Brunei.

Honda took up a controlling 51 percent stake in a local joint
venture and last week unveiled plans to invest 374 million
ringgit (US$98 million) in its Malaysian manufacturing operations
by 2005.

Oriental was quick to sign on Hyundai, under which it would
distribute and make components for South Korea's largest
automaker.

Germany automaker Mercedez-Benz will also take over the
distribution rights for its cars in January from Cycle and
Carriage Bintang, which plans to switch to Peugeot cars.

Europe's largest automaker Volkswagen AG will retain a local
distributor but on Wednesday it split with Auto Dunia and signed
on Malaysian national car distributor Edaran Otomobil Nasional
(EON) to take over the franchise for Audi and Volkswagen cars
from next year.

Toyota, Nissan and BMW have also retained local middlemen,
analysts said.

But BMW is already in negotiations to withdraw distribution
rights from Tractors Malaysia Bhd. while the Nissan franchise
under Tan Chong group appears vulnerable, they said.

Local firm UMW's rights to assemble and distribute Toyota
vehicles appear more stable as the Japanese auto giant owns 49
percent of UMW Toyota.

South Korean carmakers are among the handful that have not
seized control of distribution rights, although analysts said
they are slowly becoming a threat to their Japanese rivals.

Kia Motors has tied up with Malaysia's Naza group and said it
would invest 350 million ringgit in a manufacturing plant in
northern Kedah state, with an initial annual capacity of 20,000
vehicles by 2004.

Production will be increased to 60,000 vehicles in the long-
term, of which some 60 percent will be for export.

Analysts said Malaysia was also losing out to Thailand, which
has emerged as a regional manufacturing base ahead of AFTA due to
its lower costs and liberal investment rules.

Thailand allows foreign manufacturers to hold 100 percent
ownership, compared to Malaysia which has set a 51 percent
ceiling and stipulates the involvement of a local partner, one
industry observer said.

Toyota and Isuzu have begun moving their pick-up truck
production base to Thailand, and Germany's BMW has pledged to
invest 14.3 million dollars to expand its Thai plant to cater for
exports.

Thailand led ASEAN's auto recovery last year, producing
459,000 vehicles or 36 percent of the region's total, according
to market researcher Automotive Resources Asia.

It forecast production by Thailand, Malaysia, Indonesia and
the Philippines would grow to two million vehicles by 2006, up
from 1.28 million last year.

Thailand is expected to lead other ASEAN producers by
assembling 940,000 vehicles, or 48 percent of regional
production, in 2006.