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A sad goodbye to Goodyear Malaysia
Published on: Saturday, March 30, 2024
By: Yamin Vong, FMT
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A sad goodbye to Goodyear Malaysia
Given a controlling majority in Proton, China’s Zhejiang-Geely group will have the latitude to invest in technology and manufacturing and make Malaysia a real regional automotive hub rather than just an exporter of a few hundred cars to Bangladesh or Pakistan.
Like many other car enthusiasts, the Sultan of Selangor had nostalgic memories of Goodyear being the tyre of choice for several exotic motoring adventures, including legendary runs like the 10,000km Beijing to Paris Motor Challenge in 1997.

It appears that Goodyear’s impending exit has been received by the government with a sombre mood of acceptance and resignation. Notably, only one former Cabinet member has spoken on the matter.

Rafidah Aziz, one of the more capable ministers of a previous regime which drew many investors to Malaysia, said the government should try to understand why entities like Goodyear are leaving.

Such insights would minimise relocations from Malaysia to other countries, she said. Hers was a polite way of stating the obvious.

In truth, most car owners have already come to accept the reality that replacement tyres from China, Vietnam and Thailand offer on average an unbeatable 60% price advantage over branded tyres.

So, what does this spell for Continental and Toyo, both of which have invested in manufacturing plants in Malaysia? Will they also join the exodus?

Continental has already relocated all its production equipment for its legendary Centipede off-road tyres to Vietnam. These off-road competition-grade tyres were developed by the Sime Tyre group for the International Rainforest Challenge before it was acquired by the German-based Continental group.

In today’s global landscape, emerging nations like Malaysia face significant challenges brought about by China’s emergence as a manufacturing powerhouse.

The impact of China’s industrial prowess exposes the need for more dynamic and transparent government processes.

Vulnerabilities

One of Malaysia’s vulnerabilities is human resource.

When big manufacturers apply for foreign workers, their request for say, 500 workers, will probably be cut to half by the middle officialdom in the relevant ministry. That necessitates the employment of agents at extortionate rates to secure the required number of foreign workers.

Then, there is the situation in the automotive industry itself.

Like most emerging economies, Malaysia has a slew of five-year plans and industrial policies.

The first National Automotive Policy was embedded with elements to protect the national carmaker, Proton.

Subsequent updates provided for the energy transition from combustion to electricity, but these pre-dated China’s disruptive rise as an automotive and electric vehicle (EV) powerhouse.

That has underscored the critical importance of a well-crafted industrial policy to navigate and capitalise on the changing dynamics of global trade and competition.

Chinese brands including BYD, Chery, SAIC’s MG, MG EV, Great Wall Motors and, most recently, Guangzhou-based XPeng through its alliance with Bermaz, are already invested in Malaysia.

That is a brilliant starting point, but the closure of Goodyear’s plant in Malaysia due to competitive pressures further underscores the need for more proactive automotive industrial policies to create an environment conducive to sustainable growth and competitiveness.

The downside is that our lethargic ministers are not good at driving the required change.

Penang’s renewed relevance as a hub for electrical and electronic (E&E) multinationals seeking to de-risk from China-US trade tensions is an industrial policy that has withstood the test of time.

Former chief minister Lim Chong Eu’s focus was on providing an attractive investment environment for computer-technology companies. Today, Peninsular Malaysia is the eighth largest country globally in the supply of E&E components.

Anecdotal insights into Penang’s importance came recently from a senior manager in BMW Malaysia who recalled that during the Covid-19 disruption, he had to field calls from the automaker’s facilities around the world for help in sourcing E&E components.

Since Malaysia already has the participation of the crème de la crème of China’s automotive makers as well as Peugeot from March 1, the government should now do more to level the playing field.

DRB-Hicom, which has a controlling stake in Proton, should be asked to reduce its shareholding on the principle that the government should stay out of business unless a natural monopoly exists.

Given a controlling majority in Proton, China’s Zhejiang-Geely group will have the latitude to invest in technology and manufacturing and make Malaysia a real regional automotive hub rather than just an exporter of a few hundred cars to Bangladesh or Pakistan.

As it stands, DRB-Hicom is probably more comfortable with its protected domestic market profits than with taking on the risks associated with investments into the making and export of automotives.

Besides the labour market and market size, a lop-sided playing field could be one of the reasons why global automotive investments are bypassing Malaysia and flowing into Thailand.

Level playing field

Creating a level playing field for car companies in Malaysia involves ensuring fair competition and equal opportunities for all industry players, whether they are legacy car manufacturers or new entrants.

Here are some considerations to that end while accommodating the investments made by legacy car makers.

Firstly, there is need to implement transparent and consistent regulations that apply to all automotive companies equally.

For instance, no company should have cause to complain that there are different localisation incentives for different companies when it comes to completely knocked down (CKD) units.

There’s also the issue of how many units a car company is allowed for promotional sales before a CKD programme kicks in. Unless this is a transparent process, it will unfairly affect price and competition.

Secondly, the government must establish industry standards and certification processes that all companies must comply with to ensure product quality, safety and environmental sustainability.

As a country seeking advanced status, there should be a requirement that all traders of new cars sold in Malaysia declare their carbon footprints from well-to-wheel and total production lifecycle bases.

Thirdly, all players in the market must be provided incentives and support programmes.

Although there are already incentives from the human resources ministry for car companies that provide TVET training for EV repair and maintenance, more can be done by other ministries.

In conclusion, there are many low-hanging fruits that can be picked to improve Malaysia’s future economy.

This is a call to arms for the relevant ministers amid an unprecedented challenge posed by the disruption of global trade and energy security.

More on energy security later.

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