You're spot on with the points you raised. If only the Europeans can dial up their reliability factor and find some way to reduce their parts pricing, they could actually be very enticing. Parts pricing can be reduced if manufactured in low cost countries but I doubt their strong unions would allow that.

People rarely deny that average European cars simply drive better than the average Japanese car. They have a better feel and are easily more connected to the road they are on. They just need to build in reliability and lower parts costs. Again, like you said, it is in the priorities of these European companies. Perhaps for this market in Malaysia, they need to do a lot more rather than just depend on their performance, ride, handling, safety. What most average Malaysians want is reliability and low cost of ownership then only comes performance, ride, handling et al. And, they want reliability without the hassle of going to source for these parts on their own. Many of my Peugeot owning friends need to buy parts from Singapore simply because of the lower taxes there which makes part pricing a little more acceptable. The Europeans already have build quality, driving dynamics and brand strength. They just need to up their game. Malaysians gave Peugeot and VW their chance and well, they blew it. Anything with a Prince engine or anything that says DSG are kept far away, further than a 10-foot pole. This can also be seen in their poor residuals and reluctance by used car dealers to take in these cars.

B and C segment cars are usually bought by those who may not have a second car and having a car that is off the road for weeks causes the owner unnecessary downtime. This downtime is perhaps ok with those who have a second car or have a company car but for many, that car is their source of income - getting to and fro work. It is worse if the owner is in a sales related business where the car must perform reliably at all times. Imagine the appointments missed, the cases lost etc. People want to buy European cars but the Europeans need to give people what they want and add in their own flair for design, performance and handling etc.

Malaysians generally want a reliable appliance to drive around but if that appliance also comes with great brand, history and good handling plus safety, why not? This perhaps explains why the Japanese brands always top our sales charts. They're simply just more reliable. Mercedes Benz is perhaps the only European brand that can build something that is reliable but can they do cars for the masses? I doubt they have that skill set. Perhaps they may have but then again, they would probably prefer to milk the rich of the country...more profitable. It is the mid range brands that seriously need to up their reliability and service experience if they want to have a strong shot at this market.

Singaporeans have it like this (if I'm mistaken, do advise accordingly ya): They buy cars expensive, way more expensive than us but have low to no tax for spare parts and that's why their parts are always cheaper. Ours is a trade off in the other way...