DRB-HICOM BHD, in which Tan Sri Syed Mokhtar Albukhary controls a 55.92% stake, is set to become the biggest beneficiary of the new National Automotive Policy (NAP) to be unveiled in the coming weeks, according to industry players.

The new NAP will introduce various measures and incentives to lure foreign direct investments (FDI) to the local automotive industry, specifically in the manufacturing of a broad range of energy-efficient vehicles (EEV).

This is expected to benefit DRB as it holds substantial interests in the non-national vehicle segment, including an associate stake in Honda Malaysia,  distribution of Mitsubishi models, and a manufacturing arrangement with Volkswagen.

At the same time, the new NAP will also ensure that the low-end segment of the market, currently the domain of national carmaker Proton Holdings Bhd, remains undisturbed. Proton is wholly owned by DRB.

A voluntary vehicle inspection policy will also be announced in the new NAP. Currently, Puspakom Sdn Bhd, which is wholly owned by DRB, is the only company appointed by the government to carry out mandatory inspections on commercial vehicles.

The vehicle inspection policy, which will eventually be made mandatory, will also be expanded to cover passenger vehicles.

While the government plans to authorise more vehicle inspection centres, Puspakom is expected to get a large chunk of the business due to its existing network of 55 inspection centres nationwide.

Besides owning 100% of Proton and 34% of Honda Malaysia Sdn Bhd, DRB has interests in various other vehicle franchises and assembly contracts involving marques such as Volkswagen, Audi, Suzuki, Mitsubishi and Isuzu.

Its partnership with these foreign principals will put it in good stead as the government is opening up the automotive industry to attract foreign carmakers to expand or invest in new manufacturing operations in Malaysia.

Under the new NAP, the government will lift the ban on manufacturing licences for EEV cars regardless of engine capacity and price. At present, newcomers are only given licences to assemble cars with an engine capacity of not less than 1,800cc and priced above RM150,000.

The limitation was aimed at protecting not just Proton but other car assemblers in the country.

Lifting this ban will not affect Proton because EEVs, which incorporate advanced engine systems and technologies, are usually priced at the middle to upper range of the market.

Proton’s largest market is still the low-end range, with the Saga SV enjoying brisk sales since its launch in June 2013. This market segment is less likely to be affected by the EEVs.

“What the government is trying to do is to open up the market to a segment that will not jeopardise Proton’s market. The opening up of the EEV sector will also come with standards and compliance towards UN car safety regulations,” says an industry player.

The government has been working with automotive players to ensure they plan ahead before the sector is opened up.

This consultation between the government and industry players has seen DRB associate, Honda Malaysia, starting local assembly of the Jazz Hybrid at its Alor Gajah plant in Melaka even before the NAP is announced.

Under the new NAP, the government will offer various incentives, on a negotiated basis, to those who manufacture EEVs here. This is on top of a rebate in excise duties currently given to industry players in return for stepping up their local value added (LVA) activities under the Industrial Linkage Programme (ILP).

While Honda Malaysia has indicated that it will further invest in Malaysia, DRB may also expand its manufacturing arrangement with Volkswagen, industry observers say.

Currently, DRB assembles the Volkswagen Passat at its Pekan plant and plans to produce the Polo and Jetta models for the local and regional markets. It has been reported that DRB and Volkswagen will collaborate to come up with an Asian car, although details are sketchy.

Apart from Volkswagen, DRB’s Pekan plant also assembles Mercedes- Benz’s E-Class, C-Class and S-Class models, besides commercial and military vehicles.

While these European marques have not unveiled any plans to further boost investment in Malaysia to produce EEVs, any move by them will most likely be in collaboration with DRB as well, industry observers point out.

Volkswagen has yet to have a full-fledged production hub in Southeast Asia, a region where Japanese automakers have a clear lead. In September, Volkswagen’s group production chief Michael Macht said the German car maker is going to be more active in the region.

As the government takes a more open attitude towards welcoming competition, DRB should be able to seize the opportunity to get Volkswagen to set up a full-scale production hub here, specifically in the EEV segment, industry players say.

For the financial year ended March 31, 2013, DRB’s automotive segment (excluding Puspakom, which is categorised under the services segment) posted a pre-tax profit of RM300.74 million on revenue of RM10.14 billion. The numbers include Proton’s contribution as well as a share of profits from associate ventures such as Honda Malaysia.

The segment’s performance has improved significantly for the six months ended Sept 30, 2013, registering a pre-tax profit of RM290.4 million on revenue of RM5.3 billion.

This article first appeared in The Edge Malaysia Weekly, on January 12, 2014.