By Jalil Hamid
MALACCA, Malaysia, Jan 30 (Reuters) - Prime Minister Mahathir Mohamad welcomed the launch of Honda Motor production facilities in Malaysia on Thursday but worried about competition the firm offers to national carmarker Proton .
The vote of confidence by Japan's number two carmaker came as Malaysia struggles to maintain foreign direct investment (FDI) flows, which dropped 41 percent in 2002 on the year to 11.2 billion ringgit ($2.9 billion).
The 170-million-ringgit plant has initial capacity to produce 20,000 units per year for the domestic market.
But what may help FDI flows may not be so good for Proton, which won a controversial two-year opt out until 2005 from car import tariff cuts agreed by the Association of the Southeast Asian Nations (ASEAN).
"There are pros and cons if you open, we have problems with our own national car which none of the other (ASEAN) countries has," Mahathir told reporters after the official opening of a Honda plant in the southwestern state of Malacca.
"We have our own plant and ours is a high-cost car because the volume is not big and we have to do our own R&D. We will need the level of competency by 2005," he said.
Foreign car manufacturers and Malaysia's ASEAN partners have bridled at the waiver, which Kuala Lumpur said was essential to allow Proton time to prepare for liberalisation.
Malaysia has the region's largest auto market and closely guards its national car industry, slapping duties as high as 300 percent on imported vehicles.
Its new vehicle sales jumped nearly 10 percent to a record 434,954 units in 2002, driven by low interest rates and the launch of new models, though growth may splutter this year as buyers wait for prices to fall once the waiver expires.
Whether that happens depends on yet-to-be revealed government plans to replace car tariffs with excise duties Mahathir has said would keep car prices at current levels after 2005.
Industry analysts have predicted that Proton, Malaysia's biggest-selling car with a 60 percent share of the market, would have a hard time competing against tariff-free ASEAN imports.
Top global carmakers such as General Motors , Ford , BMW and Daimler Chrysler set up base in Thailand to take advantage of the Malaysian market after 2005.
Under AFTA, cars made by non-ASEAN producers must have local content of only 40 percent to enjoy preferential import duties.
Honda , like the other big carmakers, is eyeing South East Asian markets boasting swelling middle classes intent on trading in their motor scooters for four-wheeled transport. "This new factory in Malaysia will act as an important focal point for Honda in ASEAN. Honda is increasingly recognising the ASEAN market potential," said Katsuro Suzuki, senior managing director of Honda Motor.
Honda officials said the company plans to double the new plant's capacity to 40,000 units for exports to other ASEAN countries when Malaysia's opt out expires.
Honda Motor has a 51 percent stake in the Malaysian unit, while local firms DRB-Hicom Bhd and Oriental Holdings Bhd own 34 percent and 15 percent respectively. ($1=3.8 ringgit)