Kia Motors’ partnership with Bermaz Auto (BAuto) will see the formation of a new company – Kia Malaysia Sdn Bhd (KMSB) – which will undertake local assembly (CKD) of the brand’s vehicles in Malaysia.
However, it will be some time before CKD operations can begin, according to BAuto executive chairman Datuk Seri Ben Yeoh. During a Q&A session following a media event to formalise the deal, Yeoh said it could take between 12 and 18 months before the start of CKD operations, with an intital direct investment of approximately USD20 million (around RM82.8 million) to ready the production line.
“I think the joint venture for three models, basically, I think that in order for us to be effective and to be able to export within the regional market, we have to comply with the ASEAN Free Trade Agreement (AFTA). The AFTA stipulates very clearly that there has to be 40% local cost content and if we have a few models, we will not be able to meet this. Then, the localisation programme will not be effective,” said Yeoh.
“So, we have to be able to make sure that when we do one unit, it’s not only for the domestic market, as we are looking at the regional market. So, in terms of the localisation programme, it will be then, effective because of the economics of scale and investment in tooling will then be justified. Of course, there will be a cost penalty, and that cost penalty is mitigated by the Industrial Adjustment Fund (IAF), which the government has accorded to us,” he continued.
“Now that will mean that the majority of the cost will be absorbed by the domestic market, making it viable for the export programme. So, initially we are looking at three product lines, but that doesn’t mean that we are not exposing the full range of Kia products,” he added further.
He added that Kia models will be assembled at the Inokom plant in Kulim, Kedah, which currently has excess capacity and coincidentally BAuto has a 29% equity share in. As was confirmed in yesterday’s report, the Seltos and Carnival are two of three CKD models planned, with a third model to be determined at a later stage.
“I mentioned in the speech that there is excess capacity in Inokom and to fill the excess capacity, it will bring down the manufacturing cost. Besides, we are also looking into reinvestment in the plant; we are equity partners in the plant, incidentally. So, we have an interest to make sure that the productivity of the plant is maximised. Currently, the Inokom plant has excess capacity, and Kia contracting to Inokom is timely to maximise the utilisation of the capacity,” Yeoh explained.
“There are many areas and when the time is right, we may reinvest and have our own assembly line. Right now, we are using the assembly line that is vacant, so it’s no point in reinvesting and not utilising the resources that are already available. To remain competitive, we should reduce the cost and this is one way, to use resources available to you,” he added.
Previously, local assembly of Kia models was the responsibility of Naza Automotive Manufacturing, which is located further up north in Gurun, Kedah.
Aside from local consumption, there are also plans to have Kia cars made in Malaysia exported to nearby ASEAN countries, taking advantage of the ASEAN Free Trade Agreement (AFTA). Kia Motors is committed to ensuring KMSB becomes its regional vehicle manufacturing hub, and has a majority share of about 60% in the joint venture company.
During the interim period before the start of CKD production, Dinamikjaya Motors, a subsidiary of BAuto, will continue to sell “hangover inventory” of Kia models from the previous distributor through the 35 existing dealerships in the country. Yeoh couldn’t confirm at the time if new models will be introduced this year in CBU form, as it would require the appointment of an authorised importer, noting that the company is currently focused on ensuring a proper aftersales platform is established.
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Why the need for KIA ckd ops. Msians oredy buying kia cars from NAZA in ckd prices for decades..
That is bcoz Kia cars exported from Korea with the 4 doors dismantled. The Gurun factory only assembled the doors and call it CKD to enjoy lower excise duty. They even use Korean made Nexen tires. Nothing local. Last 2 years or more , this practice has been stopped by government. Forcing Kia to pay CBU taxes.
Smart Naza mgmt ppl indeed , kudos to them.
Former kia owner here. When i bought spectra5 hatchback, the kia salesman told me the unit was cbu but declared as ckd.
Even shown me the korean vin number underneath the driver seat (u can check it next time in Kia showroom).
They will sand off the vin number then stamped the malaysian vin number in engine bay.
Well, that was the story he told me
The third model should be the all-new Sportage, which is set to be unveiled Q3 this year.
Inilah precision engineering yang diheboh heboh kan !
Too slow, by then X50 will firmly be in the hearts and minds of buyers.
Congratulations to KIA and Bermaz! We shall see KIA be great again!
Good move Kia.
Wishing all the best to Bermaz Group and Kia on their new JV and future endeavours ! I strongly believe Kia made the right choice by ditching Naza and partnering with Bermaz. Even though Bermaz is a relatively new player in the auto industry, they have proven themselves time and time again, owing to strong leadership from industry veteran DS Ben Yeoh.
For those familiar with Korean car history in Malaysia, DS Ben Yeoh was also the man behind Hyumal, Hyundai Group’s first major JV in Malaysia in the early 1990s. I believe the first officially imported model was the Hyundai Sonata (Y2) in 1991 or so. It was powered by a Mitsubishi engine and styled by Italdesign… but it didn’t sell well unfortunately. But the story didn’t end there, instead Hyumal partnered with Oriental Group to CKD assemble Hyundai cars in Johor. This was in 2002 or so, and at the time, Oriental had to let go of their Honda franchise to Honda Japan and DRB-HICOM.
Oriental was looking for a replacement, and Hyumal came in with Hyundai. The Elantra (XD), Accent (LC) and Sonata (EF) all sold very well here thanks to very compelling CKD prices. It also helped that Korean cars of that era were already much cheaper than equivalent Japanese cars by default… Similar to how Chinese cars are even cheaper than Korean cars today.
Around the same time, Naza Group, which owned the Kia franchise since 1996, was also ramping up Kia assembly at their all-new plant in Gurun. During the time of SM Nasimuddin, Naza was a very different company, so much so that they seemed unstoppable for a time. Like Hyumal’s CKD Hyundai success, Naza’s CKD models (which they would later rebadge in their own name) also sold very well. Together, Hyundai and Kia sales and market share reached their all-time high in Malaysia during the early to mid-2000s. Combined Hyundai and Kia sales exceeded all others except Proton, Perodua and Toyota.
Then towards the end of the 2000s, two big things happened to the two Korean JVs in Malaysia. The first was the passing of SM Nasimuddin in 2008. It marked the beginning of a slow decline for Naza Group. The second was the transition of the Hyundai franchise to Sime Darby, and the shift of CKD assembly to the Inokom plant in Kedah.
Sime Darby bought a majority stake in Inokom and Hyumal around 2005. Despite their best efforts, Sime Darby couldn’t grow the Hyundai business very much in the 2010s. Some models like the Sonata (YF) and Elantra (MD) sold decently, but the volume never reached the heights of the previous decade. Sime Darby tried to push Hyundai upmarket by focusing on SUVs, tried their luck with the Ioniq, and they even brought in the luxury Genesis model… but at high prices, not far off the usual Japanese brands, few were willing to buy a premium let alone luxury Korean car.
It remains to be seen if DS Ben Yeoh and Bermaz can replicate the original success of Hyumal and Hyundai in the early 2000s. But judging by Bermaz’s recent track record with their Mazda Malaysia JV, and their overseas JVs with other brands, and the fact that Peugeot also ditched Naza in favour of the Berjaya-Bermaz alliance… I’d say Kia has the odds tipped in their favour once more. And hopefully, in time, Kia as well as Hyundai, will become a serious threat to the Japanese car brands in ASEAN. Because ultimately, healthy competition brings more value and options to the customer.
Great sharing brader Aero. Rumour has it that KIA & Hyundai cars CKD priced were actually CBU imported cars … that’s a real good deal if it’s true.
Good insight and history.
I would like to add that Korean cars in the early 2000s used to have price advantage plus superior specs plus unmatchable warranty period. KIA Forte anyone? Good price, traction control, 5 yrs warranty. Japanese cars were not offering traction control and 5 yrs warranty then.
However, after that they became over-confident and increased the prices without anything extra. The rest is history.
yep.my 2012 forte still going strong
Very insightful but i will never buy another korean product be it car or electronics regardless of brand or distributor.
Why korean cars is good enough i even want to have one
Please reduce the car price with full specs to make it more competitive against other car’s brand.
Improve the after sales service and warranty claim process.
That is bcoz Kia cars exported from Korea with the 4 doors dismantled. The Gurun factory only assembled the doors and call it CKD to enjoy lower excise duty. They even use Korean made Nexen tires. Nothing local. Last 2 years or more , this practice has been stopped by government. Forcing Kia to pay CBU taxes.
Kudos to DS Ben Yeoh for his leadership.. Congrats to Bermaz and KIA.
I need to repair my Kia Forte. It cannot start. Apparently push start mechanism and other similiar problem. Where is a major repair centre for Kia in Malaysia.