The Malaysian government introduces a vehicle-scrappage subsidy as part of a 2-year, 60 billion ringgit ($16.4 billion) economic stimulus package.

The government also is giving MR200 million ($54.2 million) to the Automotive Development Fund to support the auto industry and to establish the Automotive Institute of Malaysia.

Finance Minister Najib Razak says the government will finance 50% of the scrappage scheme, which pays owners of vehicles at least 10 years old MR5,000 ($1,354) to turn them in and purchase new cars from national auto makers Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua). The auto makers will finance the other 50%.

To qualify for the scheme, vehicles traded in must be registered with the Road Transport Dept. and be operational. Once surrendered, the cars cannot be returned.

“The automotive sector is among the major industries with potential for further development,” Najib says in a transcript of his speech to the parliament. “In the current economic situation, the sales performance in the automotive industry has not been encouraging, and many companies in the automotive supply chain are facing difficulties.

“These companies have to be assisted to enable them to continue operations, despite facing low demand and rising costs.”

Proton Chairman Nadzmi Salleh says in a statement the government’s proposal is timely and will positively affect the industry. “As an industry, we need every bit of help from the government during this difficult period to ensure survival, as close to 200,000 people are directly and indirectly linked to the industry nationwide.”

Proton Managing Director Zainal Tahir says he hopes financial institutions will play a role in ensuring the effectiveness and successful implementation of the initiative.

“We realized such a scheme will benefit everyone and is an important tool in the automotive ecosystem, (helping) the industry to dispose old cars more efficiently and responsibly while protecting the environment from dangerous and hazardous waste,” he says in a statement.

Perodua Managing Director Hafiz Bakar tells The Business Times he is hoping vehicle sales will rise as they did in Germany, where a similar scheme has been enacted. “There are some 4.8 million cars at least 10 years old on the road (in Malaysia) at the moment,” he says.

Malaysian Automotive Assn. President Aishah Ahmad tells the Malaysia Star newspaper she is disappointed the scheme is only applicable to Proton and Perodua. “There are other car brands that have been around a lot longer in Malaysia and it is disappointing that only two will benefit,” she says.

The centerpiece of the stimulus package is a plan to get credit flowing again by setting up a Financial Guarantee Institution with an initial paid-up capital of MR1 billion ($272 million), which subsequently will be raised to MR2 billion ($541 million). It is expected that bonds totaling MR15 billion ($4.08 billion) will be raised.

“Under current market conditions, even companies with investment-grade ratings are unable to access the capital market, particularly the bond market,’’ Najib tells parliament.

The government also will establish an Industry Restructuring Guarantee Fund Scheme with MR5 billion ($1.4 billion) to increase productivity and value-added activities.

Najib says the stimulus package is unprecedented in the country’s economic history, but necessary given the worsening global economy.

“Without these efforts, the economy faces the prospect of a deep recession,” Najib says. “Taking into account these measures, (gross domestic product) growth is expected to be in the range of -1% to 1% for 2009.”