This article first appeared in The Edge Malaysia Weekly on May 3, 2021 - May 9, 2021

THE appointment of Naza Group as the franchise holder for Suzuki Motor Corp in Malaysia marks the completion of the group’s automotive business transformation — into the import and distribution of cars, rather than local assembly.

What then of its ambitions to become an integrated automotive company?

Naza Group CEO for the automotive business Datuk Nik Hamdam Nik Hassan says the transformation is based on the group’s investment appetite.

“When we talk about transformation, we are talking about remodelling and reshaping the business. This is something that we have done, and we look at how things can be executed according to what we have planned for.”

In assessing the current and possible business scenarios in the automotive market and the government’s incentives, Nik Hamdam says the question Naza asked was, “What is the group’s appetite in investing in this environment?”

“So basically, we are remodelling our business strategy, to improve operational and cost efficiencies across all operations, create value and eliminate redundancies. We also want to become leaner and more robust in our operations.

“We also have to satisfy the shareholders’ expectations in terms of the threshold ROI (return on investment) that we have to achieve, and to remain sustainable in the market that we are in,” Nik Hamdam tells The Edge.

Naza Group is looking to grow its automotive business again now that it has secured the Suzuki franchise in Malaysia. In November, it gave up the rights to distribute Kia Motor Corp’s and PSA Group’s Peugeot brands.

The group is optimistic about a better performance this year, with sales expected to grow in line with the industry’s forecast 8% year-on-year rise. According to Nik Hamdam, this would translate into a 16% growth in revenue to RM700 million and a 35% increase in gross profit.

Revenue growth is expected to be derived from the Suzuki brand, as well as the other brands carried by Naza as new models will be introduced this year.

Naza is the exclusive importer and distributor of the Ferrari brand in Malaysia through Naza Italia Sdn Bhd. The company is also the sole importer and distributor of the Maserati brand in the country. Through NZ Wheels Sdn Bhd, the group also distributes Mercedes-Benz vehicles.

Unaudited 2020 figures reveal the automotive segment was making RM600 million in revenue, says Nik Hamdam.

Despite the Movement Control Order (MCO) last year, the group sold some 40 units of Ferrari, 30 Maseratis, 260 Ducati bikes, about 700 Mercedes-Benz cars and 250 reconditioned cars, says Nik Hamdam.

On the perception that a completely knocked down (CKD) assembly business would be more profitable than a completely built up (CBU) import business, as a CKD unit would receive tax exemptions from the government and may be sold at more attractive prices, he says that for Naza, the large investment required for a CKD operation is not something that the group would like to make at the moment.

“CBU will allow you to bring in more models to the market. It can be more expensive, but it doesn’t stop you from bringing in more models. For CKD, you have to be a bit selective, because you need volume consistency for production.

“So that is why we have to look carefully at what models we can bring in as CKD, and what models we should maintain as CBU.”

Naza believes that its business is now balanced in that by doing only CBU, the investments required would not be as big as CKD or manufacturing and assembly.

“The appetite for investments will have to be closely monitored. But again, if you look at the brands that we have, to do any kind of assembly operations of these brands would entail a lot more volume before you can start CKD,” says Nik Hamdam.

Nevertheless, he does not discount the possibility of a CKD operation for Suzuki models in the long run should the brand be able to expand in Malaysia and sell a sustained number of units every month. “It is not an impossibility for at least one model to be locally assembled,” he observes.

However, this needs to be discussed with the principal, bearing in mind Suzuki’s regional footprint. Suzuki has assembly operations in Thailand and Indonesia, where the Asean Free Trade Agreement allows for exceptionally low import duties.

“In the long run, maybe after two to three years, CKD operations may need to be looked at because Suzuki is something that we can grow, and by having more models in the market, I think CKD will be an option.

“I think there is big potential, but we are just one month into the launch of the Suzuki Swift Sport. If you look at the Swift Sport, it is already the high-end variant of the Swift. So that also fits into the high-end premium of the Suzuki range.

“So as you go into the next phase, of course you want to introduce more models in the market. The next phase, after Raya, we will bring in another model, which is a very popular model within the Suzuki range,” says Nik Hamdam without elaborating.

As the brand portfolio of Naza’s automotive segment is skewed towards luxury marques, how does Suzuki gel with its strategy?

According Nik Hamdam, while Suzuki is a mass market brand, it is positioned as a lifestyle brand by Naza. That is why the first Suzuki model launched by Naza in Malaysia is the Swift Sport, a high-end variant.

“It ties in with the premium selections that we have, and although Suzuki is a mass production car, it is unique because it excels in compact cars. There is a strong following for hot hatch.

“For those who cannot afford a Mini Cooper, for example, the Swift Sport can be had for just a quarter or half the price. So, it has a strong following, and from there, we can always bring in the lower variants from next year.”

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