The memorandum of agreement (MoA) signed last week between Proton Edar Sdn Bhd and Edaran Otomobil Nasional Bhd (EON), under which the latter gives up Proton car distributorship rights for super dealer status, is likely to see EON maintaining its earnings margin in the short term.
Over the long term, however, EON is almost certain to lose a lot of its former privileges.
Under the MoA, all EON signages would have to be converted to the design currently adopted by Proton Edar, EON would not be allowed to add any more accessories to the cars its sells, and the pricing and financing packages would have to be standardised for all Proton cars.
We never said the margins won't change. We never said all cars are available (to EON). This is only a memorandum of understanding of which the details would have to be worked out,'' said Perusahaan Otomobil Nasional Bhd (Proton) chief executive officer Tengku Tan Sri Mahaleel Tengku Ariff.
As far as I am concerned, even if you sell one car, 100,000 cars or 200,000 cars, you are a dealer,'' he said.
The MoA is to be finalised by June 30.
Speaking to the media at a briefing yesterday, Mahaleel refuted comments that the MoA inked by Proton Edar and EON was favourable to the latter.
We see Proton Edar as the main distributor now, even more crucial for the long term,'' he said. Proton Edar is a wholly-owned subsidiary of Proton.
In a statement handed to the media at the briefing, Proton Edar said that as the sole distributor of Proton cars in Malaysia, it would be able to effectively plan its strategies and harness its resources to meet the impending liberalisation of the automotive market in Malaysia.
There will be standardisation of the sales and service network, vehicle specifications, accessories fitment and accessibility to all Proton marque service outlets,'' it said.
It said EON was committed to accepting a minimum 100,000 Proton cars from Proton Edar and that EON, and any other dealer, would have to maintain dedicated showrooms for Proton vehicles and conform to the corporate identity of the brand as specified by Proton Edar.
Dealers or super dealer are not allowed to open any new branches without the prior approval of Proton Edar. Proton Edar has the discretion to decide on the models to be allocated to its dealers, together with any conditions imposed by Proton. Allocation of models to dealers and super dealer shall be determined by Proton Edar on a case-by-case basis.
The on-the-road price and margins to dealers and super dealer for all Proton vehicles shall be determined by Proton Edar,'' it added.
EON had on March 31 announced that under the MoA, it would be appointed as super dealer to sell Proton cars from April 1 this year to Dec 31, 2009. It would maintain a network of sales branches and dealers for the Proton brand and maintain a network of service centres and franchise service dealers to undertake after-sales service for both Proton and non-Proton brands.
EON is allowed, with a dedicated sales organisation, to distribute other marques under a separate legal entity on separate premises, and would be allocated no fewer than 100,000 Proton cars a year.
The company said its existing margins would be maintained, while margins on new models and variants would be negotiated, and that as a super dealer, it would be allowed a preferential margin from other dealers.
Mahaleel said EON, as a dealer, would get some minor form of discount for committing to sell 100,000 Proton cars a year, and that margins on future models to be given to EON would be based on the investment cost incurred by both Proton and Proton Edar in building those new models.
He said that if EON sold fewer than 100,000 cars a year, there would be consequences, which would be negotiated.
If they breach any of this (the terms of the agreement), we have the right not to deliver,'' he added.
Proton Edar chief executive officer Datuk Maruan Mohd Said said the progressive replacement of Proton's older models would reduce the number of opportunities EON would have. It boils down to the co-investment that Proton Edar as a distributor has to make in exchange for the distributorship (rights),'' he said.
Maruan said margins at the dealer levels would be consistent and the super dealer status came with a commitment by EON to sell 100,000 cars a year.
That incentive comes after EON achieves the volume. It is not automatic,'' he added.
According to Proton Edar, EON has expressed its desire to relinquish its distributor status in January because it wanted to sell other brands and not participate in the co-sharing of Proton development fees.
If there had been no agreement, he said, the best EON could expect was to continue selling the current models. And once any of the current models were replaced, EON would not get a replacement model.
Asked if the deal was more favourable to Proton or EON, Maruan said: If you look at Proton as a brand, it gives a lot of safeguards to Proton. It brings back control of the brand as opposed to what it was before. He said consumers would benefit from seeing just a single type of signage and that everything would be standardised, from pricing to accessories. EON has to run down its existing stock (before April 30) because some of the cars have been installed with different types of accessories,'' he said.
Maruan said that as a dealer, EON would receive standardised car specifications and would not be allowed to add more accessories at the points-of-sale so as to eliminate any product differentiation.
He said the promotions of Proton cars would be homogenised and should EON wish to clear old stock ahead of a new year, that should be co-ordinated at headquarters level.
Interest rates and the types of financing packages offered by EON outlets would be controlled.