The Korean and French marques would face the same struggle under a new owner they endure under Naza, says analyst

by RAHIMI YUNUS / pic by BLOOMBERG

ANY company that is going to be the new distributor of Kia and Peugeot after Naza Group of Cos is expected to face a huge challenge to make the two brands successful in Malaysia.

Bermaz Auto Bhd (BAuto) was widely speculated to take over the distribution franchise from Naza, but many believe the opportunities in the two makes offer are limited.

Industry experts said Kia and Peugeot — Korean and French marques respectively — would face the same struggle under a new owner that they endured under Naza, which is product positioning.

An automotive industry leader said the two brands will be competing in a market where national cars are becoming increasingly popular, hence squeezing the non-national segment’s market share. Within what’s left of this segment, the Japanese makes are strong for head-on competition.

The experienced auto analyst said the market shares of national and non-national cars used to be 50-50. However, they are now at about 70-30, with Zhejiang Geely Holding Group Co Ltd-led Proton Holdings Bhd enjoying a growing market share.

“Non-national cars are squeezed to 30% of the market share. Geely’s cars eat up non-national cars. They do not compete with Perusahaan Otomobil Kedua Sdn Bhd.

“Malaysia’s automotive market is a zero-sum game with hardly increasing total industry volume. With 30% left and a lack of strength to compete with Honda and Toyota brands, I do not think the change of distributor will make any difference,” the source told The Malaysian Reserve (TMR).

The source said Kia’s and Peugeot’s marketability would be handicapped by low volume, thus making it difficult for the brands to enter into the completely knocked-down space to get an edge, for example, in terms of pricing from excise duty incentives.

Another industry insider said the two brands may end up cannibalising BAuto’s Mazda portfolio, which offers the same range of products.

“It is just the same thing, but another choice of brand. Kia, Peugeot and Mazda are all offering SUVs that criss-cross each other. The pricing is not going to be much different. The two brands will eventually cannibalise Mazda unless Kia wants to play a volume game,” the source told TMR.

The source said Kia and Peugeot will dilute BAuto’s focus on Mazda in terms of capital expenditure and branding.

“BAuto is lucky that Mazda does not give them a lot of problems and sell on its own,” the source added.

The source said there is no guarantee Kia and Peugeot will be successful under a new distributor unless the principals come in a joint-venture deal.

TMR recently reported that Naza was weighing options to leave the automotive business.

A source said the conglomerate would only focus on completely built-up and approved permit businesses, while all completely knocked-down and manufacturing were likely to go to BAuto.

To date, BAuto has not confirmed or denied the rumours nor has it announced anything on the exchange regarding the matters.

Naza used to generate about RM30 million and RM20 million a month from Kia and Peugeot distributorships respectively, according to people with knowledge of the matter.

In a recent report, CGS-CIMB Securities Sdn Bhd analyst Mohd Shanaz Noor Azam said Kia could be a good fit for BAuto given the diverse portfolio offerings by the Korean marque, which focus more on passenger cars and multipurpose vehicle segments.

“We think BAuto could also be a good fit given its track record in turning around the Mazda distributorship in Malaysia. To recap, BAuto’s management took over Mazda distributorship in 2008, and it had successfully raised Mazda’s annual sales volume from less than 1,000 units in 2008, to over 14,000 units in 2015,” Mohd Shanaz stated in the report.

He noted that Peugeot could be in direct competition with Mazda for BAuto given the similar portfolio offerings and pricing strategy, especially in the SUV segment.

Hence, the analyst said it could complicate the situation for BAuto.

Nevertheless, he said Peugeot has a decent portfolio in the hybrid and electric vehicle segments, which is not available in the Malaysian market but could appeal to BAuto.

Read our earlier report here