This article first appeared in The Edge Malaysia Weekly on March 12, 2018 - March 18, 2018

THE Naza group seems to have played its cards right in selling a 56% controlling stake to Groupe PSA, the second largest European car maker. In an exclusive interview, joint executive chairman SM Nasarudin SM Nasimuddin says the sale is likely see the group have a smaller piece of a larger pie, and could also lead to it venturing into new businesses such as automotive parts manufacturing. Below is an excerpt of the interview.

The Edge: You pulled off quite a coup. This acquisition by Groupe PSA puts you in a different league. How does it change the company?

Nasarudin: I think we needed this ... The Naza group has always aspired to go regional. You know my late father (Tan Sri SM Nasimuddin SM Amin, founder of the Naza group) ... his ambition was to take Naza beyond Malaysia.

So, what we felt was that to grow our automotive business, we have to work closely with a partner. I think working on manufacturing in partnership with Groupe PSA, the second largest European car manufacturer, has in a sense realised our vision ... going regional with them.

The production in Naza Automotive Manufacturing Sdn Bhd (NAM) will not only be for the domestic market but for the export market as well, as far as Australia and other right-handed markets.

You are looking at exports. Any numbers?

We will have to work closely with them to understand the business plan, but from what I know, in three years’ time, [we are looking at] exports of about 20,000 cars.

You know manufacturing, if you don’t have economies of scale, it will bleed, it’s as simple as that.

So PSA will control the plant and run it?

The understanding with them is that we are only looking at three French executives from Groupe PSA, and the others will be from the existing manpower and local Kedahans.

The knock-on effect is big for Kedah. The spillover factor, such as indirect and direct employment, will create new vendors not just for the domestic market but for the export market as well, and, of course, beyond Malaysia eventually.

Do you have any order book figures to share?

They mentioned the figures — it’s over RM700 million in exports from next year.

How about now? What is it at now?

We are not doing any exports now, only domestic.

Because you will have economies of scale, prices will come down, right? Peugeot will also be better positioned in Malaysia?

What is important is that we become part of the international network of PSA, so global sourcing, etc, will all give us benefits.

So you can even go into automotive parts manufacturing?

Yes, that is the whole plan as well. It’s a real full-fledged partnership, and that is why we are so excited … And we are excited over the spillover factors as well.

The plant was weighing down on the group, right?

That’s right, it was. I think you know that the automotive market is very competitive. It’s a challenging market. Globally, if you look at it, there are a lot of consolidation exercises. Groupe PSA bought into Opel, Vauxhall, so how we look at it is that this plant will eventually produce those models as well because Opel and Vauxhall don’t have a presence in this region ... so, that is the big picture we see.

What capacity is your plant running at now?

About 30%, but I also see the automotive sector rebounding. It should grow, so I think our timing is perfect to get our footing back in order.

You still plan to do contract assembly right?

Yes, for Kia.

How about for others?

It’s something our partner Groupe PSA is open to [contract assembly], so Kia is fixed, it will be part of the plant. Any new brands, we will have to see.

How about component assembly?

That is next in line. So, this is part of the discussion with the PSA group to identify the core components and parts and eventually, we look into the assembly.

Engine assembly as well?

Yes.

I’m told the margins are much better.

That’s right. Once you localise it, you are right (margins are much better).

How is the Naza group now?

It is a quantum leap for us, but the opportunity is that we can implement this, emulate this same model with our other partners …. you have Kia, which we are talking to closely as well.

It’s a wake-up call for most people. Once a principal invests in a country, it’s a wake-up call for your competitors.

Groupe PSA’s justification was simple — that Naza is a good partner and we have a conducive business environment, and the government is quite open to foreign investors coming to Malaysia as well, so they immediately knew Malaysia was the hub they wanted for Asean … this is something we want to emulate with our other partners.

So, you see the automotive sector picking up?

The Malaysian market is saturated. I think the sales market is about 600,000 a year and that’s the maximum. If your ambition is to grow in Malaysia, then there is limited growth, but as a conglomerate, you need to look at the bigger picture, be a regional player.

Are there any regional markets you are looking at? Myanmar or somewhere else?

We are looking, but of course we are talking to our principal as well.

This is your growth strategy for this environment?

We have a road map for all our businesses and we believe at the right value, we are willing to look at value-extraction exercises. NAM was the first. Now, we are looking at it for all our other pillars as well.

What sort of change will the entry of Groupe PSA have on NAM’s bottom line, and how soon do you think you can see a change?

For the change, in about two years, easily in about two years. It’s profitable now, but not much.

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