By Stephanie Jacob
Since Perodua overtook Proton in terms of market share about a decade ago, it has been able to stay ahead. This is down to having a solid strategy from day one, timing their vehicle launches well and producing quality cars. Nonetheless both the national carmakers are facing increasing competition from foreign carmakers. But unless Proton makes some changes, it may well perish in the ensuing car wars.
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Perusahaan Otomobil Kedua Sdn Bhd (Perodua) was formed in 1993. As the name suggests, it was meant to be the younger (and smaller) sibling to Perusahaan Otomobil Nasional Sdn Bhd (Proton), or what is known as Proton Holdings Bhd today.
Although it was formed as Malaysia’s second local brand, Perodua teamed up with Japanese carmaker Daihatsu Motor Co Ltd in a joint venture from the get go. Under the agreement, Daihatsu provided the technology and Perodua handled the sales locally.
Perodua’s shareholders are UMW Corp Sdn Bhd with 38%, MBM Resources Bhd with 20%, Daihatsu Motor Co Ltd with 20%, PNB Equity Resource Corp Sdn Bhd with 10%, Daihatsu (M) Sdn Bhd with 5%, Mitsui & Co Ltd with 4.2% and Mitsui & Co (Asia Pacific) Pte Ltd with 2.8%.
Its mandate was to produce mini compact (A-segment) and subcompact (B-segment) cars which at the time were segments Proton did not have a presence in. This essentially made them complementary rather than competitive with each other. Till today Perodua does not have a sedan model and Proton does not have an A-segment car although this unspoken industry truce will be broken by both manufacturers in the near future.
Aminar Rashid Salleh
In May 2015, Perodua’s managing director Aminar Rashid Salleh confirmed that the automaker will release a sedan model. According to the paultan.org blog, the project has been codenamed D63D and is at the prototype development stage.
Perodua is currently evaluating engine, platform and transmission options and is likely to go with an existing Toyota or Daihatsu platform, added the blog. However, given that Daihatsu does not have a sedan model in its stable, Perodua is expected to handle much of the project including designing the car’s upper body entirely in-house.
In July 2015, Aminar confirmed that a Perodua sedan is on the way but said it would take at least three to four years to develop. He said “it is not going to come that soon, that is all that I will say… It will come, yes, and we think that it is going to be a good product”, reported the blog.
The move represents a direct attack on Proton’s traditional market which is already under threat from non-Malaysian brands. Proton has long been overrun by its younger counterpart in terms of overall market share, so the prospect of Perodua encroaching into its key segment will be unsettling.
Nonetheless it appears Proton plans to put up more of a fight than it did when ceding its market share. Instead of trying to keep Perodua out of its segments (something it might have tried in previous years), it has entered into a partnership with Suzuki Motor Corp which will help it produce an A-segment model to compete with the Perodua Axia.
It is a long overdue strategic partnership and something which many of Proton’s critics believe it should have had from the start like Perodua did. In fact, the lack of a strategic partnership is highlighted as one of the factors which allowed the latter to catch up so quickly and surpass its older sibling.
The Perodua-Daihatsu tie-up
Under Perodua’s agreement with Daihatsu, the Japanese carmaker controlled the manufacturing of the vehicle while the Malaysians handled the sales of the rebadged cars which it marketed under its own brand.
So rather than having to build-up expertise from scratch, Perodua went straight for a technological partner which saved them valuable time and money. Furthermore it allowed them to offer a quality product which many consumers felt Proton was not offering.
This stood in contrast to Proton’s strategy of working with multiple manufacturers which landed them with several different platforms. This resulted in frequent changes and the lack of focus made it hard for Proton to build up its expertise and to achieve scale – an issue Perodua did not have.
By producing a better quality and cheaper car, Perodua quickly began to eat into Proton’s market share. With its release of the Kancil in 1994, Malaysians had an affordable alternative for the first time since the Proton Saga rolled off the assembly line and foreign cars became significantly more expensive.
Furthermore the compact car also brought a whole new segment of customers into the market by offering a product which was suitable for beginner drivers and small families, for which Proton did not have a similar model to offer.
Perodua overtakes Proton in little over a decade
After the Kancil, the carmaker released the Rusa, Kembara, Kenari and then the Kelisa (which was unofficially the successor to the Kancil). Perodua continued to gain market share from Proton over the next decade from its inception.
In mid-2005, Perodua introduced its Myvi model which was a resounding success. In the following year, 100,000 Myvi rolled off Perodua’s assembly line and in just 12 years after coming into the market, Malaysia’s second car brand grabbed top spot in terms of market share. By 2007, Perodua’s market share stood at 33% while Proton’s fell to 24%, with the rest going to non-Malaysian brands.
In financial year 2014 (FY14), Perodua recorded a net profit of RM509.9 million which was slightly down from the RM521.9 million seen in FY13. Its revenue rose from RM8.67 billion in FY14 versus RM8.66 billion in the previous year.
In contrast, Proton recorded a net loss of RM43.7 million in FY14 versus a RM24.5 million net profit in FY13. This came on the back its revenue falling to RM5.46 billion in FY14 from RM6.45 billion in FY13.
Last year, Perodua had a total industry volume (TIV) of 195,000 which represented 29.4% of the market share. This put it comfortably ahead of Proton which sold 115,000 vehicles for a share of 17.4%.
In the first half of 2015, Perodua’s car sales rose 14.8% year-on-year (y-o-y) to 108,500 vehicles on the back of strong demand for its Axia model. The Axia model contributed almost half of its sales for the period under review, followed by the Myvi and Alza.
Now with both local brands set to cross into the other one’s traditional market segments, both carmakers will likely trade some market share. However, analysts expect that Perodua will likely be able to hold on to its market share better and also take Proton’s market share more easily.
Perodua has a strong hold on the mini compact and subcompact car segments as can be seen by the strong reception of its Axia and the ongoing strength of the Myvi. Unlike when Perodua came into the market, Proton will have a harder time displacing the popular brand.
The opposite will likely be true for Perodua going into Proton’s traditional segment because in this case a popular brand will be encroaching into that of one that is less so, and it stands to reason that Perodua will have an easier time convincing prospective customers to give their sedan a try.
Friends or foes
However, both local brands may soon have bigger problems than their ongoing battle. For the first time since the introduction of local brands, last year, non-Malaysian automakers grabbed the lion’s share of the market with 53.2% which left Proton and Perodua with 46.8%.
Although the analysts expect this trend to be reversed this year, the division of market share between the two is indicative of the impact that increased liberalisation is having on the Malaysian automotive sector and is reflective of the Malaysian Automotive Institute (MAI) and the government’s efforts to draw in non-Malaysian brands to set up local operations.
In FY14, Honda increased its market share by 3.7% which made it the largest gainer among the brands.
Already back in July 2014, Perodua’s Aminar had noted that Perodua was losing market share to foreign brands rather than to Proton. He told paultan.org that the loss of the market share was due to liberalisation and that “competition (from the foreign brands) is far more formidable than previously expected”.
In more recent comments following Proton’s announcement with Suzuki, the blog reported Aminar saying “our position is that national makes should have significant market share, about 60%… It will be good for the whole industry, we should complement each other rather than compete”.
But later, referring to Perodua’s plans to build a sedan which would compete directly with Proton, he said that “at the end of the day, consumers make the choice. Perodua is just fulfilling the market demand”.
What is clear is that despite Aminar’s conciliatory tone, Perodua plans to exploit any opportunity to grow its market share where is sees the opportunity and right now that appears to be Proton’s traditional segment.
Worryingly for the original local brand, MAI and the government seem to have moved on from the days of favourable protection for Proton and are now firmly emphasising the need for a holistic Malaysian automotive sector (more in Part 4 of this series).
If Perodua can produce a good sedan at a decent price, then the two combined might mean that Proton’s days are numbered. For Perodua, its ability to establish itself in this new segment will likely be the difference between it maintaining its pole position or losing it to non-Malaysian brands who have begun to established a serious local presence.
With rolling back of all government subsidies and perhaps even a gradual reduction of taxes on cars, Proton is unlikely to succeed unless it faces reality and ties up in one way or another with a major car manufacturer who will give it access to world-class technology.
At the end of the day that is the difference between Perodua and Proton – in this case that’s the difference between life and death.
Yesterday: Where Proton went wrong
Tomorrow: Transforming the car industry
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