Malaysia Day Special - Tracing The Origins Of Malaysia's Automotive Industry

Contrary to popular opinion, Malaysia already had a very active automobile manufacturing industry long before Proton came along. In fact, amongst the 10 countries within the ASEAN trade-bloc, Malaysia was the first to have an automobile industry and had a nearly 30-years head start over Thailand, which only started assembling vehicles in 1961.

As far back as 1930, Ford saw strong growth potential in the British colony of Malaya and began small scale vehicle assembly operations in Singapore, which was then part of British colony of Malaya.

Buoyed by a growing demand for cars, Ford began construction of the first full-fledged vehicle assembly plant in South East Asia in Bukit Timah, Singapore. The plant was completed in 1941. However, World War 2 broke out soon after and the plant was placed under the control of the Japanese military, who used the plant to build Nissan military trucks.

After the Japanese military surrendered in 1945, it would be another two years before the Ford Malaya plant resumed operations.

In the frugal post-war years, our young nation was growing rapidly, thanks to a boom in the tin-mining industry, which accelerated the growth of several major cities including Ipoh and Kuala Lumpur. The populace of this young nation were eager to work hard and make their lives better. There was a growing demand for cars but most of the models on sale were still too expensive for the masses.

In 1957, a very enterprising local, the late Tan Yuet Foh, heard news that the President of Nissan was paying a visit to the newly established Japanese embassy. With little education and without the luxury of powerful connections to put him in touch with the President, he waited outside the embassy gates for the President.

His tenacity was rewarded when the President granted Tan the franchise rights to Nissan vehicles, the first Japanese brand vehicle to be imported into the country. Tan's deal with Nissan would soon set in motion a tide of cheap, reliable Japanese cars that eventually pushed out many European brands within just two decades. Read more about Nissan's history in Malaysia here.

By the '60s, the government began putting greater emphasis on industrialisation, which was seen as a more dependable economic sector for employment and economic growth.

Under the recommendation of Colombo Plan experts, a Commonwealth supported initiative to assist the development of South East Asian nations, the Malaysian government, in May 1964, announced a policy to encourage the local assembly of vehicles and manufacturing of automotive components.

To further develop the local automotive industry, and to encourage manufacturers to assemble their vehicles locally, the government adopted an import substitution policy, where importations of Completely Built Up (CBU) vehicles were discouraged by imposing high import duties.

Licenses were given out to car companies to set-up automotive assembly plants. Many of these pioneer vehicle assembly plants are still in operation today.

The first vehicle assembly plant to be set-up under this plan was the Volvo owned Swedish Motor Assemblies (SMA) in 1967. By November 1968, assembly began for the Volvo 144, the first locally assembled car in Malaysia.

The Shah Alam plant is still in operation until today and with the secession of Singapore in 1965 and closure of the Ford plant in Bukit Timah in 1980, SMA is now the oldest surviving vehicle assembly plant in the country.

SMA currently produces models like the Volvo XC90, Volvo XC60, Volvo S80, Volvo S60 and Volvo V40 for the local market as well as exporting to Thailand.

Other plants like Assembly Services Sdn. Bhd. (currently owned by Toyota) and Associated Motor Industries (inactive, formerly owned by Ford but now belongs to the Tan Chong Group) were also constructed soon after, also within the same area in Shah Alam.

However, the government soon found out that the current policy wasn't doing enough to meet the objective of promoting a strong local automobile manufacturing sector.

Because of our market's small volume, car companies and parts manufacturers weren't investing enough to produce value added components locally. Most of the locally produced parts were still limited to low-value parts like tyres, lights and batteries.

The proposed answer to this was the National Car Policy, mooted by the then Deputy Prime Minister and Minister of Trade and Industry, Tun Dr. Mahatir in 1979.

In 1981, during a visit by the late Yohei Mimura, the then President of Mitsubishi Corporation to Malaysia, Tun Dr. Mahatir expressed the idea of a building a Malaysian car, with a Malaysian brand, with Mitsubishi as its technical partner.

With a Mitsubishi coming on-board by providing its Lancer Fiore as a donor car, the national car project was gaining traction. Proton was incorporated on May 7th 1983, with the late Tan Sri Jamil Mohd Jan as its chairman. HICOM held a 70 per cent stake in the company, while Mitsubishi Motors Corporation held the remaining 30 per cent.

By 1984, a prototype model of the Proton Saga was already undergoing road trials and the model was launched on July 9th 1985, by Tun Dr. Mahatir Mohamad, now the Prime Minister.

Contrary to popular opinion, the government did not to raise prices of non-national brand cars to support the national car project. The reason why the RM18,000 Proton Saga was priced about 20 per cent lower than an equivalent Nissan Sunny 130Y and a Toyota Corolla was because as a national car, the Saga was exempted from paying import duties on the Completely Knocked-Down (CKD) kits, which the locally assembled Sunny and Corolla had to bear.

The rapid appreciation on the Japanese Yen and German Deutsche Mark in the late '80s, followed by the drop in the value of our Ringgit in the late '90s, was also another factor that pushed prices of non-national brands upwards.

This set the precedence for highly-priced non-national cars, a reality that continues until today. To understand the mechanics behind car prices, read our two-part post Explaining The Mystery Behind High Car Prices in Malaysia.

In the early days of Proton, the management team was headed by three Japanese gentlemen from Mitsubishi Motors Corporation. The MD, Kenji Iwabuchi was assisted by Head of Business Division, Katsuharu Asao and the Head of Corporate Planning, Kyo Fujioka.

Ten years after Proton was established, the government would repeat the same formula by inviting Daihatsu on-board to establish Perusahaan Otomobil Kedua Sdn. Bhd. (Perodua).

The company is a joint venture between Daihatsu Motor Co. Ltd. (20 per cent), UMW Corporation Sdn. Bhd. (38 per cent), MBM Resources Bhd. (20 per cent) and several other smaller Japanese and Malaysian companies.

Using an early generation Daihatsu Mira as a donor car, Perodua launched its first model, the Kancil on August 29th1994, two days before the National Day celebrations.

Perodua has since come a long way to become Malaysia's most popular car brand, surpassing even Proton. The company's formula for success is simple - to achieve the highest possible cost and manufacturing efficiency by focusing only on three core models, and to continuously improve them to appeal to the widest possible group of car buyers.

Today, Malaysia is the third largest car market in the ASEAN region.

On behalf of everyone at LiveLifeDrive and iCar Asia, Happy Malaysia Day to all! Watch our LLD Malaysia Day Special video as we trace the path taken by the late Tunku Abdul Rahman in declaring our independence.

Photo credits: Manufacturer's archives, Jabatan Penerangan Malaysia.