Tougher competition, healthier auto industry

  • Business
  • Saturday, 25 Jan 2014

The National Automotive Policy (NAP) is crafted to liberalise and make the auto industry in Malaysia more efficient and dynamic. There will be pain before the gain but the journey towards a freer industry will have its challenges. Perodua boss Datuk Aminar Rashid Salleh and auto industry expert from Frost & Sullivan Kavan Mukhtyar share their insight on the NAP and the changes ahead with StarBizWeek.

President and chief executive officer
Perusahaan Otomobil Kedua Sdn Bhd

StarBizWeek: If successful, the National Automotive Policy (NAP) will see global energy-efficient vehicle (EEV) manufacturers come to Malaysia. That is in direct competition with what Perodua does. How will this affect you and what will your response be?

Aminar: Competition in the A and B segments have already started a few years back and with the introduction of the EEV into the market, the competition in the automotive industry will get tougher.

We view this development positively as increased competition will only make the industry healthier and more efficient despite the challenges.

To meet with these challenges, Perodua has embarked on a strategic 5-year roadmap to make us globally competitive in terms of quality, cost and delivery.

Within these are three factors include pricing, quality product offerings and high standard of service (for both sales and after sales) as well as parts.

These initiatives are already bearing fruit such as the Perodua S-Series introduced last year and the new Alza introduced recently which not only include better offerings but also on-the-road price reduction across our model line-up.

In addition, we have given all our customers (who purchase their vehicle since March 2013 and this year) a 3-year free service package as we believe that value is not only reflected in the price but overall ownership experience and the total cost of ownership.

How do you think the reduction of car prices would impact the company and its profit margins, if at all? What will Perodua do to address this?

In the revised NAP announced recently, the International Trade and Industry Minister mentioned that there will be a gradual price reduction of vehicles. That being said, the actual reduction will be determined by the original equipment manufacturers (OEMs) themselves after taking into consideration competition due to the liberalisation of the automotive market.

For the industry in general, cost is a big factor in car pricing and hence the importance of cost reduction activities across the supply chain would be essential towards being price competitive in the market while continue to enjoy reasonable profit margins.

For Perodua, we have embarked on a 5-year strategic roadmap (since 2011) to ensure that our entire supply chain will be able to compete and reap the benefits of liberalisation.

Apart from cost, we also need to improve on our productivity and efficiency in all aspects of our operations, including reducing or eliminating wastages. This journey will continue as there is always room for improvement.

We have also put more emphasis on our after-sales services to enhance our customer experience while at the same time introducing more value-added products and services such as Perodua’s Pre-owned Vehicle business.

This used-car business is more towards supporting our sales operations by making it easier for our customers to trade in their current vehicle for a new Perodua.

These initiatives are designed to ensure that our customers’ needs are well looked after.

In summary, while there is a strong desire and intention to bring down vehicles prices, sometimes it may not be possible. As an alternative, we give added value to our vehicles while at the same time bring down the cost of ownership.

This is part and parcel of Perodua’s original mandate to manufacture and market quality-yet-affordable, value-for-money vehicles for Malaysians.

What do you feel on the NAP details announced and what do you think is needed to make the NAP a success?

We are thankful that the Government has taken most of our views into consideration on the revised NAP. We believe that constant engagement with the relevant stakeholders – for example OEMs, consumers and media – is crucial in making the NAP a success.

Close monitoring is also crucial to ensure that projects undertaken are on track.

That being said, there are still more details to be announced regarding the NAP, as the Government has requested for more time to do an in-depth study on a few issues.

While Thailand and Indonesia may have had a headstart, we believe that Malaysia can still create a niche in the EEV market and complement the neighbouring countries.

There must be commitment from all stakeholders to ensure the success of the revised NAP and for the local automotive industry to move forward.

On the whole, how will the NAP affect Perodua’s business?

The NAP has issued a challenge to the OEMs to be more competitive and we have taken this positively.

Perodua is mandated to produce affordable yet high-quality compact cars and we will continue to do so. In this sense, there will be no change.

What is expected to change is the level of competition, which is expected. In meeting this, we will commit to our 5-year strategic roadmap to ensure that we will be relevant in the automotive industry.

The strategic roadmap focuses on four areas of transformation:


·Products and services

·Research and development and procurement

·Customer services and satisfaction

Perodua will continue to invest and we (along with our partner Daihatsu Motor Co of Japan) are committed to improve and develop the local automotive industry.

We are happy yet humble to be where we are today as the most preferred automotive brand in the country and we aim to increase our footprint outside Malaysia in the near future.

We will soon embark on the second phase of the 5-year strategic roadmap that will propel Perodua into 2020.

Frost & Sullivan partner and automotive and transportation practice head for Asia-Pacific, Kavan Mukhtyar, at a briefing on Jan 5, 2012.
Kavan: ‘The policy indicates that Malaysia has chos en the path of progressive liberalis ation rather than disrup tive liberalis ation.’

Partner and head of automotive & transportation practice, Asia-Pacific
Frost & Sullivan

StarBizWeek: What are your thoughts on the NAP in general? In your opinion, how does this NAP (2014) leverage over its predecessor?

Kavan: In our opinion, the NAP 2014 is a fine balancing act between the priorities of attracting new investments, developing sustainable industry competitiveness on one hand and safeguarding the interests of existing investors and stakeholders.

The policy indicates that Malaysia has chosen the path of progressive liberalisation rather than disruptive liberalisation. There are several policy signals that demonstrate Government’s intent to further open the market over the next four to five years.

Many of the stated policy measures are at a macro level, and the effectiveness of the customised incentives to attract investments will depend on the specifics of the benefits available.

In summary, the NAP is along expected lines and can be viewed as a first step in a journey towards progressive market liberalisation.

The aim of the NAP is basically to attract more investments into the country. Do you think this can be realised? What, in your opinion, might need to be done further (by the Government or car players) to bring in further investments?

Unlike Thailand and Indonesia, the Malaysian EEV policy covers a wide range of vehicle segments including luxury vehicles. So there could be some possible opportunities. However, the actual investments will depend on how the incentives are compared with what other countries are offering.

In addition, OEMs will also consider other market demand and supply-chain strength factors. The potential EEV market needs to be large enough for the investments to be economically viable. At the same time, the automotive part supply chain needs to be competent to support the OEMs.

In other words, attractive incentives will need to be combined with a push to generate demand and build competencies in the supply chain. If Malaysia is able to move fast and implement projects rapidly, then it has an opportunity to attract investments.

With the freeze on manufacturing licences for vehicles below 1.8-litre lifted, how do you think this will affect players within this segment, especially for Proton and Perodua? What would they need to do to prepare for increasing competition?

If Malaysia is able to get additional investments in the A (city cars), B (small and compact cars) and C (mid-sized sedans) vehicle segments, then the national makes will face intense competition. Proton and Perodua will need to launch new models faster with greater fuel efficiency at more competitive prices. They will have to grow scale.

Also, we believe they need to move urgently to expand beyond Malaysia to grow their volumes. Opportunities in after-sales and accessories, vehicle finance and genuine auto parts should also be pushed forward to bring in higher margin revenue streams.

Related stories:

Auto policy makes big pitch in bringing in manufacturers of energy-efficient vehicle

AP policy in doubt

Slowdown in used car sales likely

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Business , Aminar , Perodua , NAP


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