German luxury car maker BMW will take over the distribution of its vehicles in Malaysia ahead of market liberalisation here in 2005, a report said today.

BMW will sign a pact tomorrow with local franchise Sime Darby Bhd. to set up a joint venture company, in which it will hold a 51 percent stake and Sime the balance, the New Straits Times reported.

The move ended months of negotiations between the two parties and came after BMW decided last year to make Malaysia the regional centre for its Asian operations, it said.

Sources were quoted as saying that Sime, which sells around 2,000 BMW vehicles a year in the country, would retain its assembly and retail rights.

Direct presence

The Bavarian company is expected to set up an office in the Cyberjaya township south of Kuala Lumpur as well as a distribution base in the Port of Tanjung Pelepas in southern Johor state, the daily said.

BMW is following other foreign carmakers including Japan's Honda Motor and Germany's DaimlerChrysler which have begun phasing out franchises to cut out middlemen and boost their direct presence in the region.

The shake-up in the auto industry comes ahead of market opening in Malaysia under the Association of Southeast Asian Nations (Asean) Free Trade Area (Afta).

Tariffs for most products in the region were slashed to below five percent in January under Afta but Malaysia, the biggest car market in the region, has delayed opening its auto sector until 2005.

"When the principals come in and handle directly their marques, expect a repricing and repositioning that should make buyers a happier lot," said a sectoral analyst.

The government has, however, warned consumers not to wait for cheaper cars under Afta as excise duties would be raised to replace the loss of revenue from import tariffs. - AFP