Malaysia's auto market is maturing and in a state of "chronic overproduction" due to easy issuance of licences to foreign car assemblers, the head of national carmaker Proton warned in remarks published today.

Proton chief executive Mahaleel Ariff told The Star newspaper that Proton and number two national carmaker Perodua had a combined capacity of 500,000 units, more than enough to serve the domestic market of around 450,000.

But a recent spate of new assembly licences granted to vehicle assemblers within the Association of Southeast Asian Nations (Asean) and outside the region had pushed capacity to around 700,000 units a year, he said.

Opportunities were further limited with the domestic market maturing as the ratio of people per car dropped to four to each vehicle, compared with 30 people to a car in Thailand and Indonesia, he said.

"Pure economics will tell you that many won't attain economies of scale and prices will fall as too many goods chase too few customers," Mahaleel said.

Unlike Thailand, which required assemblers to export, he said there were no rules for vehicle assemblers in Malaysia to export or to purchase and use local content.

Producing bikes

Mahaleel forecast competition in the Malaysian market to worsen as the Asean Free Trade Agreement (Afta) comes into full effect, but said he hoped Proton sales would improve over the next two years with new products coming onstream and aggressive export expansion.

Proton's plant in Indonesia will also be ready for production by the fourth quarter, he said.

Its new unit, Italian motorcycle producer MV Agusta Moto SpA which it acquired two years ago, would focus on turning itself around and lowering costs before expanding into the Asian market, he said.

Mahaleel said Proton's recent tie-up with Germany's Volkswagen AG could lead to technology sharing and the joint development of cars would boost Proton's brandname and translate into stronger demand in the coming years.

Proton was set up in 1983 as part of Malaysia's drive into heavy industry, and used to sell six out of every 10 new cars in the country.

But its market share fell to 49 percent in 2003 and dipped further to 44.5 percent in the first eight months of 2004 as consumers hoped that rule changes would make foreign cars more affordable.