A couple of weeks ago, Perodua held a press conference to announce their results for 2015. The raw numbers paint a very rosy picture if you’re a Perodua shareholder as they had an outstanding year in difficult market conditions. Sales grew by 9 per cent to smash through the 200,000 units per year barrier for the first time; ending up at 213,307 units, propping up the total industry volume which would have otherwise ended lower than 2014. All in all, Perodua took 32 per cent share of Malaysia’s 2015 car sales and just one per cent down of their best ever number in 2007 when they had 33 per cent of a much smaller total market.
The numbers for their servicing as well as parts and accessories divisions also saw an increase with revenues raising by six and two per cent respectively, while total production volume for their plant was approximately 229,000 cars for the last 12 months. The discrepancy between production and sales was down to fulfilling the overhang of orders from the previous year, but also to build up some stock for 2016.
Those are the broad numbers for Malaysia’s top national car brand (they’ve led the market for a whole decade), but the details make for even more interesting reading.
Higher conversions led to higher sales
The order books for 2015 actually had over 273,000 cars with deposits placed, but as with any other car brand, there will be buyers who either change their minds or fail to obtain financing. In 2014, this conversion rate was 69 per cent, but for 2015, when finance companies tightened their requirements to give out loans, they hit an incredible 78 per cent. February was particularly memorable as they achieved a 95 per cent conversion rate. Look a little closer though and it’s evident the second half of the year had a higher percentage of drop-outs, so 2016 may see a lower number.
Still, Proton blamed tightening lending laws as one of the reasons for their 2015 numbers not meeting expectations, so it can be assumed Perodua is able to attract higher quality customers who either don’t require loans or have good credit scores. That’s explainable if you view most Perodua purchasers are either buying second or third cars, or are parents helping their children get their first car.
Perodua Managing Director, Datuk Aminar Rashid also mentioned how the tough economy in 2015 had actually helped Perodua.
“Despite the tough conditions, Malaysians still needed to buys new cars, so many buyers taking a cost conscious approach decided to buy-down, meaning they opted for a Perodua instead of a more expensive car. These buyers aren’t willing to compromise on quality and value, so it speaks volumes about how our cars are perceived” he said.
Three models to rule them all
While many brands have models that number in the dozens in their line-ups, Perodua has three. The Axia, Myvi and Alza form a logical line up for buyers with the replacement for the Viva leading the way. From the total number of cars built last year, the Axia accounted for 47 per cent of volume, with the Myvi and Alza at 36 and 14 per cent respectively. Yes, add the numbers up and it doesn’t reach 100 so we’re assuming the final three per cent was for the last remaining batches of cars like the Viva.
Investing for the future
CAPEX expenditure is always seen as a good indicator of future plans and from 20013-15 Perodua spent RM2.8 billion. That’s nearly as much as alleged donations from alleged Middle Eastern donors who allegedly want to help Malaysians, and yes that joke never gets old.
Approximately 50 per cent of that was spent on the new vehicle production plant in 2014, with RM408 million being spent in 2015 on an engine plant. For 2016, the company estimates they’ll spend RM370 million on CAPEX, which is a pretty good return on investment if they manage to achieve their target of 216,000 units sold this year.
Supporting the car industry…
In 2015 Perodua spent RM4.9 billion on components to build cars, which is a jump of 26 per cent from 2013. With each of their cars having a localisation ratio of over 90 per cent, the bulk of their spending was paid to the Malaysian component supplier community, which in turn injected funds in to the local economy in the form of salaries for workers and then their own local consumption. Smart arse economists call it the accelerator effect, which is rather apt for a car company.
…but they can’t do it alone
In 2014, foreign car brands took 53 per cent of total volume for the Malaysian automotive market. In 2015 the number remained the same despite Perodua increasing their market share by three per cent. Therefore, the fall off points to Proton continuing to lose sales.
Figures released by the MAA for 2015 show Proton selling only 102,175 cars; good enough for second but barely more than Honda and Toyota. In fact, for November and December both Japanese brands sold more than Proton, which is something that might carry on in 2016.
Instead of celebrating though, Perodua are concerned about this trend. Having taken a more pragmatic view of the industry, they’re rightfully worried the shift in buyer preference to foreign car brands negatively affects Malaysian suppliers and dealers as they lose volume. It’s also right to say these suppliers can’t yet compete with foreign competitors so even if there’s an increase in CKD numbers, they’re unlikely to gain much benefit.
Taking a look at the bigger picture, Perodua are also worried about being exposed to more forex risk should they need to source more parts outside of Malaysia. They’re already pretty close to having to make price adjustments to combat reduced margins, so the situation could lead to more expensive cars in the future.
Still, Proton has already laid out their ambitions for 2016 with an aggressive model renewal programme (they want to launch four new/updated cars this year) and a target of selling 150,000 cars (an incredibly ambitious increase of 50 per cent) so if they manage to hit their targets and arrest their 15-year market share slide (they have only 15 per cent compared to 53 per cent ion 2001), Malaysia’s car supplier and dealer ecosystem could receive a massive boost.
For the future
There are plans for improvements in revenue, sales and service CSI scores in 2016, but the most interesting thing Perodua will do this year is launch their own used car reseller division. Just like how parent company Toyota has Top Mark to sell used Toyotas, there will be a company set up to sell used Peroduas. The cars will be inspected, serviced and come with a limited warranty, in the long run, this move should help to establish stronger used values for Perodua owners.
In the end
We could write thousands of words about the relative merits of following the two business models Malaysia has used in setting up national car companies. One has floundered, while the other keeps on moving forward with the metronomic efficiency shown by many Japanese car brands. That’s hardly surprising of course because Perodua is literally the passenger car arm of Daihatsu and thus they’ve adopted their business ethos. 2016 will undoubtedly prove to be another good year for them in what is expected to be an even gloomier economic environment, which ultimately is the bright spark Malaysia’s automotive industry needs.