The national automotive industry must be sustained with high taxes on imported cars and limited entry of foreign makes to help stem the outflow of money overseas, former prime minister Tun Dr Mahathir Mohamad said.
"Proton Holdings Bhd may not be earning much money through exports. But it does the next best thing, that is, preventing money from flowing out to buy foreign cars," he said in his special luncheon address on "Shaping a National Auto Industry: How National Cars can contribute towards Economic Development" at the Fourth Kuala Lumpur International Motor Show 2013 here yesterday.
"We sell roughly 600,000 cars a year. Half the number would be locally-made cars.
"Assuming an average price (for a national car) of RM40,000, the total sales value would be about RM12 billion. That would be the additional amount that will flow out if all cars are imported. It would certainly increase the country's budget deficit," Mahathir, who is adviser to Proton, said.
He was commenting on why the government should continue its protective stance for local auto manufacturers.
Mahathir said buying things from foreign countries results in an outflow of funds and this would be bad on the balance of payment and trade deficit.
"To prevent this, we can do two things. We can limit imports or we can increase exports. Among the items which absorb funds in large amounts is the import of cars. The purchase of cars involves large sums of money. When we buy foreign cars there would be a big outflow of funds," he said.
Mahathir added that the imposition of high taxes on imported cars as well as periodic changes to standards set for foreign makes' entry into the country would enable Proton cars to sustain its share in the domestic market, which currently stood at 27%.
"Can Malaysian-made cars compete in the domestic market against foreign imports? They could if the price is right. To ensure the prices are right the government has to tax imports at a higher rate," he said.
"All countries wishing to promote their local auto industry have no choice but to make imported cars costly. Japan and South Korea had done so. Other countries simply make it bureaucratically difficult for cars to be imported.
"Apart from taxes on foreign cars, the standards were raised in foreign countries so that imports find difficult to qualify. The standards were raised periodically so that foreign cars wishing to enter the market have to be upgraded continuously," he added.
Mahathir said Proton cars have a 90% localisation content and its sale is largely in the local market where it has to compete with imports.
"Even with reduced taxes, it cannot sell well in free trade agreement (FTA) countries. The volume is just not big enough and it takes time to amortise the cost of development. In other words, Proton is at a disadvantage in Malaysia and in the Asean Free Trade Area (Afta) countries," he said
On another note, Mahathir said Malaysia should embrace a higher level of sophistication in terms of industry and production of manufactured goods, acquiring a high level of know-how such as engineering capability to become a developed nation by 2020.
"We (Malaysia) have a very big ambition to become a developed nation by 2020. To achieve that goal, it is not just a question of per capita income. To be a developed country, we need other things as well. Among which is the level of industrialisation, sophistication of the economy and of course per capita income," he said.
Mahathir also pointed that the country could expand its expertise in the aviation industry, especially in the production of composite parts for aircraft.
"We can do that at a lower cost. At the moment, we have contracts with Boeing and Airbus to produce composite parts. We see more and more people using composite than metal. We can do it cheaper than doing it in Europe.
"There is a future for Malaysia if we train our people well," he said.