National carmaker Proton will start producing its own engines this year ahead of the opening of the domestic auto market by 2005, a report said today.

The Campro engine, which was jointly developed with British unit Lotus Group, would cut production costs by 20 percent and save the company some RM1 billion over the next five years, chief executive Mahaleel Ariff was quoted as saying by the Business Times .

Testing of the engine has been completed and Perusahaan Otomobil Nasional Bhd (Proton) is studying the best way of mass producing the engine, which will be used in its cars from early next year, he said.

Mahaleel described the new engine as a "very important development" for Proton as it prepares for market liberalisation under the Asean Free Trade Area (Afta).

"It will not only ensure that Proton remains competitive in 2005 but has built-in technologies that will ensure that we stay that way in the future," Mahaleel told reporters in Britain.

"I feel very good about this engine. It will make Proton cars desirable and ahead of the competition. We will be able to compete with them price-wise and have the added advantage of the Lotus brand name."

Proton, which has owned 80 percent of Lotus since 1997, was also developing a common chassis with its British unit to further lower production costs, he added.

Cutting costs

More than 65 percent of cars sold in Malaysia are Proton, partly because of high tariffs on imported cars but its tariff protection will largely disappear by 2005 under the Afta.

Tariffs on auto products in Asean will fall to between zero and five percent by 2003 but Malaysia has been allowed to delay tariff cuts until 2005.

Prime Minister Dr Mahathir Mohamad has told Proton to cut its production costs to stay competitive ahead of tariff cuts and said the government was prepared to authorise the sale of up to 30 percent of Proton.

Malaysia has pledged it would not seek to extend the two-year delay in exposing its auto sector to competition.

But the government in May said it may introduce measures such as higher sales tax and surcharges or certificates of eligibility allowed under Afta to protect local carmakers. — AFP