Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on April 30, 2018 - May 6, 2018

AUDI Malaysia is believed to have put on hold indefinitely plans for the local assembly or CKD (completely knocked down) operations in the country, sources familiar with the matter tell The Edge.

As a result, it seems likely Audi Malaysia will be put under the umbrella of Audi Singapore, which could result in some restructuring.

The sources say there is also a possibility that Audi may shift its CKD aspirations to neighbouring Thailand.

When contacted, Audi Malaysia said, “We are not able to comment on such matters except to reiterate that Audi Malaysia will continue to operate and is committed to the Malaysian market.”

Audi executives had divulged plans for the CKD operations in September 2016. The news had caused some excitement as the move would have brought down the cost of the cars, potentially boosting Audi sales and eating into the market share of rivals Mercedes-Benz and BMW.

The then marketing director of Audi Malaysia, Rudi Venter, had set a timeline “within the next two years” for the CKD operations.

It is understood Audi Malaysia was in talks with DRB Hicom Bhd, which has a plant in Pekan, Pahang, as well as Sime Darby Bhd, which has one in Kulim, Kedah.

But nothing came of the negotiations. It is worth noting that Sime Darby assembles BMW vehicles while DRB Hicom does CKD operations for Mercedes-Benz.

Other plants, such as Volvo Car Manufacturing Malaysia Sdn Bhd, are operating at high capacity and may not be able to take on additional work.

According to sources, excise duties for completely built up (CBU) cars can be as high as 100% of their cost while import duties are in excess of 50%.

For CKD cars, excise duties could be slashed by half.

Under the National Automotive Policy, a certain percentage of car parts for CKD cars is required to be sourced locally. However, this is not hard to fulfil as parts such as windows, interior linings and seats, which do not require high technology, can be easily produced locally.

The Audi A4 is currently priced at RM214,900 to about RM310,000 while the BMW 3 series starts at RM205,800.

To put things in perspective, last year, Audi sold 701 cars in the local market for a 0.1% market share compared to Mercedes- Benz’s 12,045 cars (2.1%), BMW’s 10,618 units (1.8%) and Lexus’ 953 units (0.2%).

Audi could possibly have increased its market share as it is a popular luxury marque that chalked up sales of over 3,100 units in 2013.

To recap, Audi Malaysia was established after Audi AG took back the franchise from DRB Hicom in 2014, relegating Euromobil Sdn Bhd — a wholly owned unit of DRB Hicom — to being a dealer.

Euromobil, which assembles Volkswagen cars and is the country’s largest Audi dealer, suffered an after-tax loss of RM26.22 million from RM382.12 million in sales for its financial year ended March 2016.

It fell into the red after at least four straight years of after-tax profits, which ranged from RM95.80 million in 2014 to RM7.05 million in 2015.

The National Automotive Policy 2014 (NAP) also brought about some uncertainty. Under the Technology and Engineering thrust, there was a provision in the NAP for import tax and excise duty exemption for CKD hybrid vehicles from Jan 1, 2014, to Dec 31, 2015, and for CKD electric vehicles from Jan 1, 2014, to Dec 31, 2017.

“Beyond these dates, the incentives will be customised based on the strategic level of the CKD investments as in the investment value, production volume, technology transfer, research and development activities, supply chain development, employment, exports programme and others,” NAP 2014 says.

In response, one car company official says, “Investors vote with their feet when there is uncertainty.”

Talk about Audi setting its sights on Thailand for its CKD operations could also have been fuelled by recent moves by its rivals. BMW has made known plans to build a plug-in hybrid electric vehicle (PHEV) battery plant in Thailand while Mercedes-Benz has applied to assemble PHEV and electric vehicles at its plant in Samut Prakan.

Audi’s new partner in Thailand, Krisada Lumsum — who took over from German Motor Works Co Ltd, a company controlled by the Leenutaphong family — has also been creating a buzz.

There is also the issue of scale. Malaysia’s total industry volume (TIV) last year was 576,635 units, a decline of 3,489 units or 0.6% from 2016. Vehicle export numbers are not certain but the target set was 31,000 units.

By comparison, Thailand’s vehicle sales for the whole of 2017 came up to 871,644 units, while exports amounted to 1.14 million units, which works out to an annual production of about two million cars a year.

One motoring enthusiast points out that for the whole of Southeast Asia, which has a population of about 650 million, the market for Audi is just 5,000 units a year.

In China, which has 1.3 billion people, Audi sold 597,866 cars last year. As its total worldwide sales amounted to 1.88 million cars, that means the China market accounted for one in every three cars sold by the car maker.

 

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