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UPDATE 2-Malaysia passenger car sales down 12 pct in H1

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KUALA LUMPUR, July 24 (Reuters) - Malaysian passenger vehicle sales sank 12 percent in the first half of 2003, industry data showed on Thursday, as drivers opted to wait and watch prices fall ahead of a planned cut in auto import duties.

The skid in car sales accelerated from a 9.5 percent fall in the first five months of the year, with 161,265 units sold in the year through June, the Malaysian Automotive Association said.

The trade body has also forecast car sales to drop five percent to 342,000 units this year from 2002. The country was South East Asia's biggest car market last year, but Thailand is expected to take the lead this year.

"As indicated earlier, market conditions in the first half of 2003 were not conducive for motor vehicle buyers as a result of the Iraq war and outbreak of SARS," said Aishah Ahmad, president of the Malaysian Automotive Association.

Car sales are expected to slow this year as buyers await lower prices, after low interest rates and a spate of new models boosted sales by 10 percent in 2002.

Falling used car prices and hopes of cheaper new cars cooled consumer appetite, ahead of the Malaysian auto industry's delayed entry into the Association of South East Asian Nations Free Trade Area (AFTA) in 2005.

Under AFTA rules, tariffs on imports would be cut to between zero and five percent. Malaysia's current tariffs on imported cars are as high as 300 percent.

Malaysia was allowed to delay applying AFTA rules to cars in order to allow its domestic car industry -- dominated by Proton (Perusahaan Otomobil Nasional Bhd) , which accounts for 60 percent of the country's car market, and Perodua (Perusahaan Otomobil Kedua Sdn Bhd) -- time to shape up.

Despite the pledge to slash high auto import duties, the trade body did not expect prices to fall post-AFTA entry.

"Even though import duties are going to come down, to compensate for the loss of revenue I think the government will come up with other local duties," Aishah told reporters.

Aishah also said that she did not foresee any concessions for the car trade in the 2004 budget, due on September 12.

"Our sources do not say there is any change for the auto industry in the upcoming budget," she said.