AUTOMOTIVE INDUSTRY: Production and sales of new vehicles have expanded amid challenges
THE Malaysian Automotive Association had on July 23 revised upwards its total industry volume (TIV) forecast for this year to 680,000 units from the earlier target of 670,000 units.
Its president, Datuk Aishah Ahmad, said the 3.7 per cent increase from last year’s TIV of 655,793 is set to be a record high in the country, on the back of a promising economic outlook and positive consumer sentiment.
Business Times talks to two automotive captains, Mazda Malaysia Sdn Bhd managing director Datuk Seri Ben Yeoh and Inokom Corp Sdn Bhd managing director Mohd Rizal Jailan, to gain further insight.
Question: How is the automotive industry doing?
Yeoh: We foresee growth with the introduction of new models from established brands, namely in the B and C segments (B-segment cars have more than 1.8-litre engine capacity while C-segment cars are below 1.8-litre) as well as the multi-purpose vehicle (MPV) and sports utility vehicle categories.
Completely new models are being introduced to meet new levels of expectations that not only encompass the aesthetic design, technology and engineering innovation, but also comply with new international safety and environmental standards.
Mohd Rizal: The production and sales of new vehicles have expanded in tandem with the country’s economic growth and increased standard of living. Today, we have a mature automotive industry and assembly facilities.
Our homegrown automotive component manufacturers have expanded beyond our shores to compete in the international arena. We also have a robust retail environment with an increasing number of brands establishing operations here.
Super-premium marques like Koenigsegg, McLaren and Rolls Royce have set up operations here.
From a low base of 104,009 units in 1980, the total production volume has more than tripled to exceed 600,000 units last year, marking an all-time high for the industry.
Question: What are the challenges?
Yeoh: The ever-increasing demand from customers has led manufacturers to produce high-quality cars in terms of specifications and engineering, as well as packaging.
This is especially so in areas of automotive connectivity and modern comforts that are wrapped around their ideals; a car that is fun to drive, fuel-efficient and safe.
The most imminent challenge is that cars should be priced competitively with good specifications and great styling. The fast-changing environment has increased customers’ expectations. This is a new challenge for the industry.
Mohd Rizal: Among the challenges are a saturated local market with more brands competing for a slice of the pie; high duty structure for motor vehicles and components; lack of economies of scale especially for completely knocked down (CKD) operations and local vendors, thus pushing up the overall costs and making the export market highly competitive; and intense competition among Asean member nations for foreign direct investment.
Question: Is Thailand a threat?
Yeoh: The automotive landscape has changed, with Asean now being viewed as a single market by most global players. The Asean Free Trade Area (Afta) has also created a new manufacturing environment. Presently, Thailand is benefiting most from Afta, having the more established automotive industry compared with Malaysia and Indonesia.
Thailand and Indonesia will achieve a higher a TIV growth compared with Malaysia.
Mohd Rizal: We are closely watching Thailand. With the encouragement of cross-border trade among Asean nations, the Thai market is being opened up to vehicles assembled in Malaysia.
This makes staying competitive a challenge. However, we are happy that the Thai market is opening up to our completed vehicles also also automotive parts. In essence, we should strengthen our country’s automotive total supply chain.
With the new National Automotive Policy (NAP), our industry will have the opportunity to progress further and be one of the main players in the region.
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Question: How do we compete with Thailand and other countries?
Yeoh: The government must compel principal manufacturers towards industrial activation that generates an “inclusive and complementary programme” to ensure balanced intra-Asean trade. Manufacturers in the automotive industry play an important role in propelling socio-economic activities in the country.
Malaysia has already established a good base for component manufacturing. This should now move up another level to attract global parts manufacturers, especially the Japanese, to extend their activities to Malaysia.
Malaysian component manufacturers should make known their resources and capacity in order to attract potential joint-venture partners to Malaysia.
Mohd Rizal: In the current market, we should not compete with specific countries. We have to ensure that we are competitive, based on global benchmarks. We should embark on the Blue Ocean Strategy, as Inokom has. We have set our vision to be the boutique premier assembly partner for global and reputable brands. Niche markets, such as premium brands with energy-efficient vehicle (EEV) technology, should be an excellent platform to support NAP.
We have full confidence in the government’s policies, which have enabled us to be a regional automotive player and continues to propel us forward. When we are seen to be competitive, vehicle manufacturers will move their business to our shores.
Asean is becoming increasingly open and this is a huge opportunity for Malaysia.
Question: Are there many global automotive companies shifting to Malaysia?
Yeoh: Thailand and Indonesia have been the base for Japanese manufacturers in the last two decades to produce small cars, people carriers (small MPVs) and light pick-up trucks for domestic consumption and export within Asean and emerging markets. They have found their competitive advantage over Malaysia and have been able to generate enough volume to be competitive. They are looking at advance eco-car technology and providing incentives to consumers as well as manufacturers to initiate volume growth.
Malaysia can take advantage of this situation and concentrate on a different segment. Malaysia has a larger passenger segment than Thailand and Indonesia. Therefore, it is only prudent for local manufacturers to explore opportunities to produce higher technology and modern passenger cars to meet domestic demand and also to export within Asean in smaller volumes. And these could be higher-cost vehicles, such as EEVs or hybrids.
Another challenge for the national automotive industry is to explore opportunities based on Afta and create a balance in Asean intra-trade from the automotive sectors.
Mohd Rizal: Malaysia has a good track record in securing foreign investments and technology transfer.
This has been translated into a robust CKD assembly business and a strong market for quality parts from homegrown manufacturers.
The evidence of this is the wide range of vehicle assembly operations here, from commercial vehicles to luxury brands, with Malaysia being recognised as an automotive hub.
We are encouraged by investments recently from manufacturers like the Great Wall Motor Co Ltd, Mazda and Honda Motors. There are also other collaborations which will be disclosed when the time is right.
As long as there are opportunities and the environment is conducive, foreign vehicles makers will continue to invest and expand here.