Malaysian Prime Minister Abdullah Ahmad Badawi said Thursday that prices of cars built by national makers Proton and Perodua, and some foreign makes, will fall following a new auto policy.
"Yes, the prices of Proton (cars) will unavoidably be reduced because Proton has to compete," Abdullah told reporters when asked if Proton car prices would drop following the release of the policy on Wednesday.
"Proton has to have a price on its product which will be acceptable to the market. This is extremely important, they know that," he said.
He said prices for most cars would fall including vehicles imported in parts and assembled in Malaysia however sports utility vehicles, four-wheel drives and fully imported vehicles could maintain current prices.
Malaysia on Wednesday announced a string of new measures to boost its ailing auto sector, including tax cuts to five percent from 15 percent for cars from the 10-member Association of Southeast Asian Nations (Asean).
The move was brought forward from an initial date of January 2008 in a bid to promote Malaysia as a regional auto exporting hub. "It will make the industry more dynamic," Abdullah said of the policy.
"We are now turning ourselves to the foreign market, to other countries, we're not just confining Proton to Malaysia. Proton must grow big, Proton must be competitive and the present management knows this."
The barely profitable Proton has struggled with a reputation for producing shoddy and unimaginative models. It has been fighting a steady decline in its market share which plunged to 41 percent in 2005 from 60 percent in 2002.
It also blames cheaper foreign imports for taking away market share, amid government liberalisation of the sector under a free-trade pact with Asean.
Proton hopes to improve its domestic market share to 45.8 percent in the year to March 2007.
An auto analyst with SBB securities said the impact of the price drop would be slightly negative in the short-term
Proton would also need to spend more on research and development to improve the quality of its cars and this would further erode margins, said the analyst. "Proton must depend more on the export market and somehow it has to achieve the targets that have been announced."
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