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The Malaysian automotive market is no longer a semi-private hunting preserve for the country’s two national car companies.

Protectionist walls enjoyed for decades now are weakening and competition from foreign auto makers is sharpening as government leaders in Kuala Lumpur recognize the old ways won’t work well in a changing world.

Malaysia now has free-trade agreements with several countries and the abolition of tariffs Jan. 1, 2010, on imports of vehicles made within the 10-member Association of Southeast Asian Nations already is noticeable.

Vehicle imports, mostly from Toyota and Honda plants in Thailand, soared 61% to 60,920 units in 2010, accounting for 10% of Malaysia’s total vehicle sales. This year, they climbed 39% to 25,525 for a 12.2% share in the first four months.

“Both national car companies are being hurt by foreign competitors since duties went to zero,” says Ammar Master, senior market analyst with J.D. Power Asia Pacific.

“Malaysian consumers now have a wider choice of vehicles at more affordable prices, and there is a strong likelihood of further market liberalization.”

Proton and Perodua no longer are just in a fair fight with each other. Their combined market share plunged from 65.6% in 2009 (Perodua 34.6%, Proton 31.3%) to 57.6% last year (Perodua 31.4%, Proton 26.2%), and they now are forced to fight more aggressively for sales.

For Perodua, the market leader since overtaking Proton in 2006, a joint venture with Daihatsu offers access to Japanese management skills, advanced technology, superior platforms and styling expertise.

This has yielded models that can compete domestically against Japanese brands, including the next-generation Myvi 5-door hatchback that just launched. The previous model has been the country’s top seller for the past five years.