Don't expect cars to be cheaper when the Asean Free Trade Area (Afta) comes into force in 2005, Prime Minister Mahathir Mohamad warned today.

"Sorry, some people are waiting for the price to go down (but) it's not going to happen," Mahathir told a news conference.

He said local taxes would be imposed on all cars to replace the loss of revenue from import tariffs after Afta comes into force.

"All cars will be subjected to the same tax so the price is not going to go down."

The import duties on 'completely knocked down' cars, which are currently about 42 percent, are expected to be cut to less than five percent by 2005.

"But once (foreign cars) are in, they will be subject to other taxes (which) will be imposed on all cars locally produced as well as imported," Mahathir said.

The taxes are necessary because the government needs "to finance development and to pay government servant salaries".

'Proton will survive'

Asked whether local carmaker Perusahaan Otomobil Nasional Bhd (Proton), which has been protected by the high import duties, would be able to compete after Afta, Mahathir said it would have to strive to lower its production costs and enhance its capacity.

"It's going to be a big challenge but we think we are going to survive. We are even going to do very well."

Mahathir said earlier in an address to mark the launch of new Proton models that the automaker needed to remain a Malaysian company in order to ensure there would be continuous manufacturing of local models.