(Recasts, adds regional projections and analyst quote)
By Barani Krishnan
KUALA LUMPUR, July 24 (Reuters) - Malaysia is set to lose its pole position in Southeast Asia's auto market to Thailand after sales dipped 12 percent in the first half of 2003, an industry group said on Thursday.
Passenger car sales skidded to 161,265 units from January to June compared to 182,706 in the same 2002 period, the Malaysian Automotive Association (MAA) said.
Total industry volume, including commercial vehicles and four-wheel-drives for business or personal use, could fall to 420,000 units in 2003 from 434,954 in 2002, it said.
This means Thailand will take the region's top spot, with projected sales of 480,000 to 500,000 units this year, according to the MAA.
But Malaysia will still be ahead of Indonesia with 340,000 units, Singapore (93,000) and the Philippines (90,000).
"We may be falling behind Thailand but I've seen worse times in this business and I don't think we're that badly hit," said Aishah Ahmad, president of the Malaysian automotive group.
Low interest rates, a spate of new models and the cycular nature of demand all helped boost sales 10 percent in 2002.
Aishah said the softer market for the first six months of 2003 due to the Iraq war and SARS virus outbreak which both dampened the economy.
She said car traders have resorted to price cuts to lure buyers and the trend was expected to prevail through the year, allowing buyers more time and choice.
Motorists are also waiting for prices to fall ahead of the Malaysian auto sector'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 , which accounts for 60 percent of the country's car market, and Perodua -- time to shape up.
Despite the pledge to slash high auto import duties, Aishah said she did not expect a major drop in prices post-AFTA.
"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," she said. ((Reporting by Barani Krishnan; Editing by Simon Cameron-Moore; [email protected]; Reuters Messaging: [email protected]; +603 2275-6846))