By Pauline Ng, in Kuala Lumpur

MOST analysts see little impact in the near to mid term after Malaysia further liberalised its automotive sector.

Auto stocks reflected the ambivalence yesterday, dropping slightly after the long-awaited tweaking of the national automotive policy (NAP), the country's auto blueprint for the future.

Analysts said that having opened up its auto market earlier, Thailand has the advantage as the hub of choice.

According to OSK Research, Thailand has attracted seven global auto players and a handful of smaller ones with a total output capacity of 1.625 million units annually.

Malaysia's capacity is about a third. "We do not expect foreign direct investment to rush in because the market size for cars larger than 1,800 cc is small and assemblers may lack economies of scale," Hwang-DBS observed in a report on the sector.

Indeed, Malaysian officials acknowledge a global trend towards basic or low-cost vehicles.

The two main liberalisation incentives offered this time, however, pertained to full equity ownership for manufacturers of luxury vehicles of 1,800 cc and above that retail for at least RM150,000 (S$61,530); and full investment tax allowances for higher value-added component makers and hybrid part producers.

Given that the big Japanese and US car companies have flocked to Thailand, Malaysia's best bet is the European players, namely Volkswagen which has been slower in getting a foothold in Asean and which is still seen as a potential partner for national car company Proton.

Proton has huge excess capacities in its plants which can be quickly leveraged - a reason that OSK is more positive about its prospects - while Mercedes and BMW already have local assembly contracts.

And should a proposal under the NAP to scrap older vehicles gain traction, Proton and its local competitor Perodua would benefit, because both are low and entry-level manufacturers.

However, the scheme would be unpopular given the hardship it would pose to the lower income and rural population, and the government might well call off the plan.

The direct beneficiaries are likely to be the tier-1 car parts makers. Although there are nearly 700 local manufacturers of parts and components producing more than 5,000 parts - mostly for Proton and Perodua - the competitive ones also supply to other car makers.

Exports of parts last year amounted to RM1.5 billion.

This article was first published in The Business Times.