Thursday 28 Mar 2024
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This article first appeared in Corporate, The Edge Malaysia Weekly, on July 25 - 31, 2016.

 

PROTON killer is an undiplomatic but commonly heard moniker that Perodua has been trying to disassociate itself from, even as the second national carmaker eclipses its forerunner. While Proton should shoulder responsibility for the abysmal sales of its cars as well as its financial woes, Perodua certainly isn’t making things easier.

Perodua last week launched its first sedan, the Bezza. Priced between RM37,300 and RM50,800 (for Peninsular Malaysia), it will compete directly with Proton’s Saga. This is a major departure from the company’s strategy in the past, which avoided direct competition with Proton by focusing on the compact car segment.

“I think there is enough room in the market for both of us (Proton and Perodua) and everyone can be successful,” Perodua CEO Datuk Aminar Rashid Salleh answers diplomatically when asked if he is worried about Proton’s reaction to the Bezza. “We can complement each other. Of course we will compete in some areas, but that is healthy competition. The main thing is to ensure that national cars maintain their market share.”

It is important to note that the Bezza and the existing Saga do not compete head-to-head on price, at least not since the 1.6-litre variant of the Saga was phased out from Proton’s line-up. The 1.3-litre Saga is priced between RM33,970 and RM38,000, which puts it around the entry level 1-litre variants of the Bezza. In contrast, the 1.3-litre variant of the Bezza starts at RM42,800.

It appears that Perodua’s strategy isn’t to compete on price but on a better package overall, compared with the relatively spartan Saga. This ranges from simple things like larger boot space and foldable passenger seats, all the way to keyless entry and push start-and-stop buttons.

With over 95% localisation, Aminar hopes the Bezza will be able to enjoy better margins than the Axia as well as the Myvi.

That said, Proton is the least of Perodua’s worries at the moment. The soft automotive market is the biggest challenge to achieving its targeted 30,000 sales in the first three months, and about 7,000 a month thereafter.  

As at last Friday, Perodua had recorded 5,000 bookings and delivered 500 units of the Bezza  — all within a week of the launch.

Meanwhile, for the six months ended June, total industry volume fell 14.5% year on year to 275,459 units.

The country’s top five automakers saw a net y-o-y decline in sales (see table). While Perodua’s sales fell only 10%, Proton’s fell by 28.8% to only 35,731 units.

Proton only managed to sell 17,150 Sagas in that period, or 2,860 a month on average. Hence, Perodua cannot rely solely on taking market share away from the Saga to beef up the numbers for the Bezza.

Instead, the carmaker projects that as much as 35% of Bezza sales might be cannibalised from Myvi and Axia sales, or about 20% and 15% respectively.

Nonetheless, the market took the Bezza’s launch quite positively. MBM Resources Bhd’s share price soared almost 20% to a high of RM2.43 last Monday on a surge in daily trading volume following the launch. MBM has a 22.6% stake in Perodua, which contributes 80% to 85% to its earnings. 

MBM’s share price ended the week slightly lower at RM2.35 last Friday, which was still 27.7% lower than a year ago.

It is noteworthy that Perodua’s largest shareholder UMW Holdings Bhd, which has a 38% stake, saw its share price remain relatively unchanged at RM5.70 last week. This is because Perodua’s earnings contribution to UMW is relatively small. The share price of DRB-Hicom Bhd, which wholly controls Proton, also remained relatively unchanged at 91 sen.

The timing of the Bezza launch isn’t good for Proton, not because it will affect the sales of the existing Saga, but because it puts Proton in a difficult position when launching new models. After all, Proton only makes razor-thin margins on the current Saga.

Recall that Proton is planning to launch two additional models — a revamped Persona and Saga — later this year or early next year. Both are believed to be in the late stage of development, with Proton’s vendors already in the process of procuring machinery and equipment for these models.

To put it in a nutshell, Proton won’t have much flexibility to react to Perodua’s Bezza, except perhaps, by stripping features to compete on price, explains one industry veteran. He points out that the new Saga will be based on the existing Iriz platform, a car that is currently priced at between RM41,500 and RM62,500.

Interestingly, Perodua is unlikely to release a Bezza with a larger engine down the line despite the proven popularity of the 1.5-litre Myvi. For starters, this would cannibalise too much of the Myvi’s market share. Secondly, Perodua’s product offering would begin to get dangerously close to that of Toyota — the group’s ultimate technological partner and substantial shareholder.

The price of the Toyota Vios currently starts at RM77,800.

This means that Proton could have room in the price range above RM60,000. But that is a segment that faces intense competition from the Japanese carmakers, one that Proton’s brand has traditionally struggled to contest in.

Keep in mind that there is immense pressure on Proton to make something of its new models following a RM1.25 billion bailout by the government. On top of that, Proton cannot afford to launch another model that flops because of the damage it will do to brand confidence.

Against this backdrop, the next 12 months could be the most decisive in the history of Malaysia’s two national carmakers.

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