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Friday, February 11, 2011

Forget merger, think Proton-Perodua alliance

Forget merger, think Proton-Perodua alliance

SOURCE: Star Motoring  via BERNAMA

In fact, they are already cooperating in a limited way by having common parts vendors.

Currently, Perodua and Proton share 91 vendors. Even now, Perodua makes Campro cylinder heads for Proton.


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Car industry analysts believe that both companies could also cooperate in logistics support like transportation of new cars or maybe there could be outlets that could sell two national brands.

What needs to be done is to take these linkages to a higher level, which can be further helped with the consolidation of the auto vendors in the country.

This is where the Ministry of International Trade and Industry can help and show the way by facilitating and consolidating local vendors.

They have been consolidated from 500 to about 250 now with nearly 100 shared by Proton and Perodua.

Pushing for higher quality and competitiveness will also help further develop competitive vendors for auto firms not only for the country also the region.

It must be remembered that the auto vendors do not only service Proton and Perodua, but the entire automotive industry in the country.

Also, it is only fair that Perodua be given the chance to implement its five-year road map premised on improving quality, costs and efficiency to stay competitive as a regional auto player.

It plans to reduce costs through efficiency, a move seen as crucial to keep the prices of its new cars low.

Otherwise, the company will be forced to raise car prices to achieve returns on investment since a sizeable sum is spent for every new model and maintaining brisk sales for Perodua cars.

It is also to make Perodua competitive in the post-2015 scenario, and in this regard, vendors have to seize opportunities and see the big picture and not just be vendors to Perodua and Proton alone.
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Perodua's long-term plans is wrapped around a green and economical technology called metal-free liquid feed cell system.


There could also be interest from new vendors, foreign ones, who could own up to 100% equity, and this means that local vendors would be left out if they didn't shore up their capability, efficiency and quality as Perodua and Proton may resort to cheaper but quality vendors to stay competitive.

To keep strong interest in the brand and stay ahead in terms of market share, Perodua is expected to roll out the replacement model for the Myvi later this year although orders for the existing model, introduced five years ago, is still going strong.

For 2010 Perodua sold some 188,700 cars with an industry market share of 31.2%.

The Myvi is the best selling model with nearly 78,000 units sold in 2010 and is the highest selling model for five years running.

Analysts say there will be major enhancements in the new model compared to the current Myvi.

There will also be a special edition Alza, which will pay tribute to former Prime Minister Tun Dr Mahathir Mohamad as the man who jump-started the country's automotive industry.

Some of the proceeds will go to the Perdana Leadership Foundation as Perodua's Corporate Social Responsibility.

Under its five-year plan to remain a viable auto player, Perodua has successfully convinced Daihatsu to locate an electronic automotive transmission plant in Serendah this year, which will likely entail an investment of between RM200mil-RM250mil.

Perodua sees this project as one where Proton can also come in to collaborate and help consolidate the local auto industry in terms of upskilling and technical know-how.

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Perodua also aims to double its engine components export business from about RM25mil a year currently to RM50mil in three years' time.

This will be done through increasing the export volume to existing countries such as Indonesia, Pakistan and Japan as well as looking for new markets.

On the export of completely-built-up units, Thailand and South Africa were quoted as countries Perodua is keen to explore.

This is an area where local vendors could reap rewards if they are competitive as their markets are not limited to Malaysia but where Perodua and Daihatsu have a strong presence.

The government had clearly pointed out that it wanted to see the two manufacturers emerging as highly competitive entities able to stand on their own in a post-liberalisation period under the Asean Free Trade Area as well as through the World Trade Organisation.

Against such a backdrop, it is best both companies endeavour to raise their level of competitiveness to prepare for post-liberalisation period under the National Automotive Policy and help Malaysia emerge as a regional auto hub for Asean as well export national cars.

But exporting national cars to Asean can be sticky as the technical partners might not be too keen in seeing Malaysian cars compete with their cars in Asean.

In addition, it takes a lot of effort and expense to develop one's own brand as Perodua had found in some markets.

A more acceptable arrangement could be that the national car maker produce the cars to be sold under the technical partner's brand name.

Although, it might not amount to selling the national car overseas, foreign exchange earnings will still accrue to the country even if they are sold under a different name.

Analysts said that Perodua has indicated to the ministry that it has the ability to undertake this on behalf of Daihatsu in markets that the latter may have diminished interest.

At the end of the day, it means that Perodua can reap better economies of scale and bring in valuable foreign exchange by being a contract manufacturer for its principal but the process can also help the local auto industry to flourish in that local auto components will be used.
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It is for this reason Perodua is pushing local vendors to upgrade their quality, efficiency and productivity so that they can stay relevant under more competitive conditions post-liberalisation.

Another proposal is for Perodua to both export the Perodua and Daihatsu brands but for different models in markets where Perodua has already built up a strong brand presence.

There is no denying that one of the difficulties towards a merger involving equity holdings as Perodua's technical partner, Daihatsu, may not see a strong business case to work with a different entity with different technical partners and philosophies.

That aside, there are many areas that Proton and Perodua can work on and work together in moving Malaysia's auto industry up the value chain and entrenching it as an industry to be reckoned with regionally and globally.


 -Bernam/The Star

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