The automakers singled out Malaysian Prime Minister Mahathir Mohamad's refusal to match neighbors' plans to cut tariffs as a key deterrent to investing in the member states of the Association of Southeast Asian Nations, or Asean. Malaysia, trying to protect its own car industry, wants to delay the cuts for two years.

"The Asean Free Trade Area is vital for the survival of the Southeast Asian auto industry," said Toyota Managing Director Koji Hasegawa. "China and India have markets big enough to support a local industry."

Most big automakers have some investment in Southeast Asia, with Thailand their first choice. The region's fragmented markets, though, reduce average plant capacity, making it twice as expensive to produce in Asean as in the U.S., analysts said.

The lure of China and India is also increasing as the countries lower entry barriers and offer much bigger consumer markets than the smaller populations of the Philippines, Indonesia, and other Asean members.

Malaysia says it needs more time to bring down tariffs to the levels in the rest of Asean to prepare its biggest carmaker Perusahaan Otomobil Nasional Bhd., or Proton, for competition.

"Proton survived only because of protection," said William Botwick, president of General Motors (Thailand) Ltd. "The government of Malaysia has admitted as much by keeping its protectionist policies."

China's passenger car market is set to surge by half to 1 million vehicles in five years, from 660,000 units last year, according to Volkswagen AG, which controls about half the market.

Asean's car and truck market, split between its 10 member nations, totaled 1 million vehicles last year.

"Asean won't become the kind of single economic region that the European Union is for many, many years," said Stefan Jacoby, Volkswagen's vice president for the Asia Pacific region.

"Whenever (Asean) becomes one economic region it will include China and we will be ready to sell to the market from our production facilities in China," Jacoby said.

(Eastday 04/03/2001)