KUALA LUMPUR, Malaysia – Foreign auto makers are gaining an increasing share of Malaysia's domestic market, as strong economic growth drives demand for higher-value cars.

Sales of new vehicle sales in 2012 grew by 27,630 units, or 4.6%, from prior-year, with total industry volume reaching 627,753, according to the Malaysian Automotive Assn.

Passenger-vehicles deliveries grew 3.2% to 552,189 units, while commercial vehicles jumped 16.2% to 75,564.

The MAA expects continued growth in car sales, although at a somewhat slower rate, over the next five years. Industry volume is forecast to increase 2% to 640,000 units in 2013 and to grow at a compound annual growth rate of 2.1% to 699,300 from 2013 to 2017.

MAA President Datuk Aishah Ahmad says Malaysia's impressive economic growth, with gross domestic product predicted to rise 5% in 2012, was the key factor driving the market last year. Due to stable employment and rising disposable incomes, a growing number of consumers in the car market are trading up their purchases.

"There are more middle-income consumers now, so there are more people buying brands in the middle, rather than the low end of the car sector," she says. "This will continue as disposable incomes increase."

Aishah also says that while domestic auto makers Perodua and Proton continue to dominate the car market, market share taken by overseas brands is increasing significantly.

MAA data shows Perodua's sales grew 4.8% to 189,137 units in 2012, with its share flat at 30%, while Proton's sales fell 11% to 141,121, with its share slipping from 26.4% to 22.5%.

By comparison, the three leading foreign auto makers in the market all enjoyed double-digit growth last year: Toyota was up 17.3% to 105,151 units, Nissan rose 11% to 36,271 and Honda increased 7% to 34,950.

Toyota's share at the end of 2012 stood at 16.8%, with Nissan's at 5.8%, and Honda's at 5.6%.

Sales of other major overseas car brands climbed significantly in the year. Volkswagen was up 43.5% to 13,003 units; BMW 20.9% (6,318 units); Peugeot 12.6% (6,114); Kia 60.2% (4,374) Mitsubishi Fuso 19.1% (2,180); Chevrolet 37.2% (2,026) Audi 34.4% (1,414); and Land Rover 65.8% (643).

Aishah says that in addition to rising demand, growth in the market is being driven by "the introduction of several new models at competitive prices, innovative and attractive offers, schemes for new car buyers and aggressive sales campaigns."

She forecasts the market to become even more diversified this year, with about 200 new-car models and variants expected to be introduced in 2013, compared with an average 100 new models over recent years.

Roslan Bin Abdullah, president and chief operating officer-Honda Malaysia, says the auto maker plans to launch several new models in the small- to medium-car segment this year in order to meet growing demand.

"The middle income consumer is our main target audience," he says. "These consumers are looking for greater fuel efficiency, as well as affordability."

Shoen Saito, head of marketing and product-Mitsubishi Malaysia, says the auto maker is looking to increase its sales to about 30,000 units a year by 2015. Mitsubishi recently launched its first new car in Malaysia, the Mirage hatchback first introduced in November 2012.

Saito hopes to sell between 4,000-5,000 units of the Mirage here, adding that as incomes rise, Malaysian consumers are becoming more discerning. "They are very choosy now when it comes to key components like the engine. That's why they are more open to new brands."

Additionally, he says there used to be only a few auto makers offering SUVs, but now many others have entries in the segment. People are looking for more value-added cars."

As the market becomes more competitive, Perodua and Proton both are looking to boost production and increase quality.

Perodua recently announced plans to invest MYR790 million ($255 million) to set up a new company within the Perodua group that will have state-of-the-art production facilities adjacent to its existing factory in Rawang, just outside of Kuala Lumpur.

“This new company will be a role model for our existing manufacturing plant,” Perodua Managing Director Datuk Aminar Rashid Salleh says. "It will have improved systems, new technology, more automation and will be environmentally friendly."

The new factory will be able to build 100,000 units annually a year on a 1-shift cycle. The existing plant can produce 200,000 units a year with two shifts.

A Perodua spokesman says the auto maker plans to grow sales in the Malaysian market 2.6% to 194,000 units in 2013.

Proton says it will increase production to 500,000 units annually over the next five years, with 80% targeted for the local market. The auto maker also intends to expand its manufacturing facilities, with further details to be announced soon.