Malaysian Automotive Industry Analysis

The Malaysian auto market is dominated by Malaysia’s national car Proton, Toyota and Perodua which in 2008 and 2009 accounted for 76.6% of the vehicles sold annually. In the past 2 years the statistics shows that 32.2% of Perodua, 28.6% of proton and 15.8% of Toyota was sold. Thus it can be concluded that they are dominating car firms in Malaysia. These firms have reasonable prices, therefore affordable by students, non workers and workers. Also it is cheaper to service these three cars compared to other cars like BMW, Mercedes Benz, and Ford and so forth. In addition is easy to find the parts of these cars in Malaysia that is why people prefer to buy them 15

GOVERNMENT REGULATIONS 16

CRISIS FACED BY THE INDUSTRY 17

CONCLUSION 18

REFERENCES 19

HISTORY

CAR INDUSTRY IN MALAYSIA

Malaysia is one of the smaller Southeast Asian markets for motor vehicle production and sales and ranks behind South Korea, the People’s Republic of China, Taiwan, Thailand and Indonesia. Since 1985, when the first made-in-Malaysia car, Proton rolled off the production line, it have been spearheading Malaysia’s ambitious plan to become one of the world’s most advanced industrial societies by the year 2020. To date over one million Protons have been sold in 51 countries throughout the world. By contrast, Malaysia’s motor vehicle industry actually remains heavily protected with import duties ranging from 140 to 300 percent on cars, and very high local content requirements. Malaysia also maintains an import ban on motor to attract customers. A threat identified is AFTA in the year 2003. It is mostly believed that 90% of Proton buyers choose Proton over the imports because of price. Once you lift the tariff as it will be in 2003, you will lose the cash flow from the tariff and also loose tremendous market share for the Proton. Therefore, the car market industry which has been monopolized by Proton will certainly change in the next years to come.

Export of Cars

Malaysia’s cars are currently exported t over 50 countries in Europe, Asia and South America including Australia, Turkey, Russia, India, Laos, Egypt and Argentina. Malaysia’s firms export of cars started in 1986 and amounted 25 units which were exported to Bangladesh. In 1987 the export markets expended to Brunei, Malta, New Zealand and Sri-Lanka. The number of units exported in 1987 totaled 443 units. First exports of proton in Europe started in 1988 when it exported 540 units of Proton Saga to the Republic of Ireland. A year later, in 1989 proton started exporting its cars to UK, Singapore and Jamaica. Sales to UK and Ireland totaled 10 500 units during this year and since then the UK is the largest export market of Proton. Proton’s distribution in the UK is handled by its subsidiary, Proton Cars (UK) Ltd. UK export market significantly contributed to the improvement of proton’s sale from just 25 units in 1986 to 20,269 units in 1993, from these 20 269 units total exports to the UK and Ireland amounted to 17 440 (86%) units. But Malaysia’s total exports of Proton fell below 15 000 units in 1994 following a crisis between the Malaysian and the UK governments over the Pergau dam and certain defense that year exports of Proton to UK fell to 10 169 units (about 68% of Malaysia’s total exports) and since then and up to 1995-97 Proton’s exports to UK and Ireland accounted to 10 000 units. But the sales volume dropped to 7 000 units per year during the 1998-99 when proton exported less to the UK in order to minimize the lower margins of its sales to the country. In UK Proton is eligible for tax breaks under the EU generalized system of preference but it has still to enter into such car markets as Germany, the US and Japan.

The above table shows increasing trend in exports since 1994 up to 1997, rising from 14,813 units to 25,900 units. However, in 1998, a year when the economy was down in recession export of cars significantly dropped and this trend continued in 1999.

Import of Cars

Imports of cars, which were on a high trend during 1995-97, fell in 1998 due to the economic slowdown that caused the low income in the country. During this year, imports of motorcars completely knocked down (CKD), which usually make up more than 95% of the total import value of cars in the country fell to 145 217 units representing a decline of 60% from 1997’s total of 363 201 units. As for the motorcars completely build-up (CBU), their imports slowed down to 1 352 (comparing to 5 649 in 1996) due to the mentioned economic crisis but significantly increased to 5 470 units due to the economic recovery. . Imports of CBU and CKD cars together constituted about 85% of the total imports of motor vehicles in the country.

Exchange rate policy

On September 1, 1998, as part of a broader effort to reflate the economy and stabilize the currency, the government took drastic action by fixing the exchange rate of the ringgit to the U.S. Dollar at RM 3.8/US$1 and instituting selective capital controls. Malaysia’s principal objectives in instituting the controls are to eliminate offshore trading in the ringgit and insulate the domestic economy from external risks posed by short term capital flows.  The exchange controls reduce the ability of non-residents to engage in ringgit transactions, require settlement of imports and exports in foreign currencies, discourage short-term capital inflows by requiring them to remain in the country for at least one year, restrict Malaysian investment overseas, and limit the amount of foreign currency individuals and corporations can take out of the country.  The government has stressed that the measures maintain general convertibility of current account transactions, and do not impair repatriation of interest, profits, dividends and commissions on investments.  The government has also stated that the controls are temporary and will be lifted once the international financial infrastructure addresses destabilizing capital flows which the government blames in large part for recent economic difficulties. 

MALAYSIA: IMPORTS OF CARS

PRODUCTS AND SERVICES

Auto industry Malaysia is a booming industry which has been developing rapidly over the years it comprises areas of activities from car manufacturing to dealing auto business with foreign countries. Auto industry Malaysia is one of the principal producers and exporters of vehicle parts, components and accessories which are widely accepted to most of leading countries of the world. Foreign countries like Japan, United Kingdom, Thailand, Taiwan, Singapore, and Indonesia are major importers of Malaysian cars

A large number of cars are produced to meet the growing demand of consumers; this is one of the Governments attempts to restructure the automotive industry. Forecasts show an expected increase in sales in the near future after researches showed an overall growth of 13.8% during the year 2007.

The top automakers in Malaysia are Perodua, Perusahaan Otombil Nasional Bhd, and the first car project was PROTON. Measures have been adopted in attempt to meet demands of customers by providing reliable and competitive auto components and accessories.

PROTON was the base of Malaysian auto industry, ever since 1985, there has been a large number of vehicle production for a market of more than 500 000 consumers and mostly manufactured locally.

CHARACTERISTICS OF PRODUCTS/SERVICES

NORMAL GOOD:

This is an industry of normal goods, cars. This is because as the income of the population goes up, meaning a growth in the economy their demand goes up. On the other side the opposite happens. For example: Vehicle sales were up by 11 percent in 1997 to a record 405,000 units. The economic crisis dramatically impacted vehicle sales in Malaysia for 1998, with vehicle sales dropping by 60 percent, to 164,000. Hence this proves that cars are a normal good. Their demand goes up with the increase in demand and vice versa.

SUBSTITUTE GOODS:

These are good that can be used instead of cars to perform the same function as a mode of transport. These include motorcycles, trains and even bicycles.

PRICE ELASTICITY OF DEMAND:

The price elasticity of demand in this industry can be said to be elastic. Let’s take a look income in this case causing the price elasticity of demand to be elastic.

INCOME

The bigger the proportion of income spent on a good the higher the elasticity of demand. As for cars people spend thousands and even millions buying cars which are a very big proportion of their income. So as hire purchase interest go up, car buyers will have to pay more monthly installments. Even banks increase their interest rates on loans for cars

Example: A freelance car salesman identified only as Teo said a buyer taking a RM42, 000 loan would have to pay about RM54, 000 over seven years – about RM4, 000 more compared to the RM50, 000 paid when the interest rate was 2.7%.

AVAILABILTIY OF CLOSE SUBSTITUTE: Looking at this industry there are less substitutes goods. This means that the price elasticity of demand in relation to availability of close substitutes is less elastic.

EXAMPLE OF A SUSTITUTE GOOD: PERODUA MONO TRACER 130HP CABIN MOTORCYCLE

FIRMS AVAILABLE IN THE MARKET

Malaysia has 10 assembling companies and produce 18 commercial cars. The assembly companies are:

Swedish motor assemblers (Volvo car corporation) which is located in Shah Alant, Selangor which specializes in Volvo brands

Inokom Corporation (Shime Darby group) which is in Kulim Kedah and produces car brand for BMW, Jinbei and land rover

Naza Automotive Manufacturing (Nan group) produces Kia, Naza and Peugeot

Assemble Service (UMW- Toyota groups) located in Shah Alam, Selangor which produces Toyota brand.

Honda Malaysia (Honda motors) located in Pegoh Melaka which produces Honda brand

Predua located in Seiendah, Selangor which produces Perodua and Toyota brands

Tun Chong Motors Assemblers (Tun chong motors groups) which produces Nissan and Renault and has two assembling location, the first one is located in Segamba Kuala Lumpur and the second one in Serundah Selangor

Isuzu-Hicom Malaysia (Isuzu motors) which assembles Isuzu brand and is located Pekan, Pahang

Automotive Manufactures Malaysia (DRB-Hicom group) located in Pekan, Pekan, Pahang which assembles Mercedes, Suzuki and SSANGYONG brands

Oriental Assemblers (oriental groups) located in Tampoi Johor which assembles Hyundai and Chana brands.

SIZES OF THE FIRMS

A firm’s size can be determined by many factors, but in this case we are only going to deal with a few that is listed below.

Workplace/ employees: a work place can be defined as a place where people work. Therefore in this case we are mainly going to focus on the number of employees/ staff that a company has.

Production capacity: is generally the volume of products that can be generated or manufactures by a production plant (company) in a given period by using current resources.

Revenue: revenue is defined as an Amount generated from sale of goods or services, or any other use of capital or assets, associated with the main operations of firm before any costs or expenses are deducted.

Overseas: here we are going to be discussing the countries that the companies’ export their products (in this case car) to.

Now we are going to look at the above mentioned factors in some of the well known or top bestselling car companies in Malaysia

PERODUA: (the 1st/leading company in Malaysia)

Workforce: – the total number of Perodua’s staff was said to be 10,000 on June 2009.

Production capacity:-The plant currently has the capacity to produce 250,000 units per annum on 2-shift cycle.

Sales and service network: – To date, PSSB has 41 sales branches and 139 sales dealers nationwide to serve its customers efficiently. It also has 46 service branches and 117 service outlets throughout Malaysia for customers’ convenience.

Overseas: – Perodua produces its cars to countries including UK, Singapore, Brunei, Fiji, Nepal and Sri Lanka.

PROTON:

Workforce: – Proton recently has about 10,300 employees

Production capacity:- In 2006, Proton’s sales dropped by 30.4% from 166,118 in 2005 to 115,538 for the Malaysian market, with a later report indicating a 55% fall of sales to 962.3 million ringgit, its lowest in at least seven years

Overseas:- Proton exports cars to the United Kingdom, South Africa, and Australia and the company is aggressively marketing its cars in several other countries including the Middle East. Besides that, Proton has also been exporting a small volume of cars to Singapore, Brunei, Indonesia, Thailand, Nepal, Sri Lanka, Pakistan, Bangladesh, Taiwan , Cyprus and Mauritius. 14,706 Proton cars were exported in 2006

Revenue: – in 2008 it was reported that Proton’s revenue was RM 6.49billion

MERCEDES BENZ

Workforce: – Proton recently has about 10,300 employees

Production capacity: – The retail network of Mercedes-Benz Malaysia is represented by 59 authorized dealers for the Mercedes-Benz, smart and Mitsubishi Fuso brands. A total of 90 outlets provides sales and after sales services nationwide.

Overseas: – unfortunately we couldn’t find any list countries, but it’s said to be exporting its cars to 17 countries.

Revenue: – EUR 99.4 billion (2007 financial year) which is approximately RM4, 114,474,205,465.9

DOMINANT FIRMS

The Malaysian auto market is dominated by Malaysia’s national car Proton, Toyota and Perodua which in 2008 and 2009 accounted for 76.6% of the vehicles sold annually. In the past 2 years the statistics shows that 32.2% of Perodua, 28.6% of proton and 15.8% of Toyota was sold. Thus it can be concluded that they are dominating car firms in Malaysia. These firms have reasonable prices, therefore affordable by students, non workers and workers. Also it is cheaper to service these three cars compared to other cars like BMW, Mercedes Benz, and Ford and so forth. In addition is easy to find the parts of these cars in Malaysia that is why people prefer to buy them

GOVERNMENT REGULATIONS

The Malaysian government heavily influences the activities of the domestic automotive manufacturers/assemblers, by imposing high tariffs and trade barriers which in return minimizes the number of car parts being imported. For example the Ministry of International trade and Industry overseas a system of approved permits that doubles up as a quota by restricting the total number of automobiles that can be imported in a given year in relation to the size of the domestic market content.

CRISIS FACED BY THE INDUSTRY

One of the major crises that affected this industry was the extensive increase in the prices of automotive fuels in relation to the energy crisis in the years 2003-2008 .this discouraged purchases of sport utility vehicles (SUVs) and pickup trucks with low fuel economy.

In addition the automotive industry was hit by a global financial downward spiral of 2008-2010.

CONCLUSION

As this industry has been doing very well in the past, we believe it will continue to perform well in the future. We have noticed we are leaving in dynamic times and more advanced technology is being invented almost every year these new technologies might help in the new and improved models of the already dominating firms. Also, with the government imposing barriers to entry of the imported parts, this will give the domestic firms the change to out show themselves and better their goods where possible. On top of that it will assist in improving competition between locals, thus helping in the motivation of these firms, for better results. At the end of the day this will lead to an increase in the country’s (Malaysia) Gross Domestic Product as well as Gross National Product (GDP/GNP).