Previously, it was reported the Naza Group is planning to give up two brands under its automotive business wing, namely Kia and Peugeot. While there has been plenty of hearsay on the matter, we now have a better picture of what’s going on following a recent interview given by SM Nasarudin SM Nasimuddin, CEO of Naza Corp Holdings, to The Edge.

In the interview, Nasarudin said the decision to sell the group’s Kia and Peugeot businesses is part of a transformation plan to realign its business model for better sustainability. This plan was put together by him and his family members who are shareholders, and advised by a transformation committee as well as a major accounting firm.

“The group was built on the automotive business, but as we move forward, [the auto industry] is highly regulated; it requires a lot of investments. If I invest RM60 million to develop a CKD (completely-knocked down) model, whether I get returns, I don’t know. There are too many uncertainties in the market, and our principal will always want us to invest. So, to be fair to both parties, we told them we don’t think we want to do this anymore,” Nasarudin explained.

He also noted that the Covid-19 pandemic was the trigger for the group’s realignment, as it presented an opportunity to “reassess the group and make key decisions to move forward.” The pandemic has left a significant impact on the automotive industry, with the Malaysian Automotive Association (MAA) adjusting its total industry volume (TIV) forecast to 407,000 units from 607,000 units earlier in the year.

The pandemic has certainly left its mark on the sales of Kia and Peugeot models in Malaysia. Referring to MAA’s most recent sales data, in the first nine months of 2020, Kia sold 635 units, while Peugeot sold 856 units. Compared to the same period last year, the former managed 2,890 units, while the latter saw 1,526 units sold.

In 2019, Kia sold a total 3,432 units, while Peugeot registered 1,897 units. This is contrast to 2015 when Kia sold 4,674 units and Peugeot 2,986 units, with subsequent years seeing progressive declines, even without the pandemic. There were some exceptions, with Peugeot recording a sales climb in 2017, when it and Kia benefitted from the three-month GST (goods and services tax) holiday in 2018.

With Kia and Peugeot set to be released by the Naza Group, several parties appear to be interested to take over these franchises. Previous reports have pinned Bermaz Auto (BAuto), which currently handles the Mazda brand in the country, as a front runner. A source told the publication, “BAuto is in discussions with a few parties, but the principals are also talking with many other parties. Among them are Sime Darby Motors and DRB-Hicom.”

However, Sime Darby CEO Datuk Jeffri Salim Davidson has openly said that there are no intentions to acquire the South Korean and French brands. “We are not looking [to take over] the distribution for Kia and Peugeot franchises in Malaysia. We don’t want it. But we are working with Bermaz Auto to locally assemble Kia cars at our plant in Kulim, Kedah,” he said.

Sime Darby currently owns a majority stake in a plant in Kulim, which assembles BMW, Mazda, MINI and Hyundai vehicles. The plant is operated by Inokom Corp, which is also jointly owned by BAuto (29%), Hyundai Motor of South Korea (15%) and Hyundai-Sime Darby (5%).

When asked how he felt about reduced earnings from Naza Group’s automotive arm after it releases the Kia and Peugeot franchises, Nasarudin said they are also talking to some brands. “One or two want to come into the market, so we want to go back to the basics of trading,” he said.

“We have a long history with Kia and Peugeot. We are quite emotional about parting ways with them, but it has got to the point where, to be fair to both parties, we don’t feel the value in investing and we’re not going to see the returns that we want,” he added.

The Naza Group also operates higher-end brands, namely Ferrari and Maserati, with Nasarudin confirming both will be kept in the group’s portfolio. “That we will maintain. Those are somehow doing very, very well for us, and that is a profile we want to keep as well,” he said. Other brands under the group’s wing include Mercedes-Benz (NZ Wheels), Citroen and DS (Naza Euro Motors), Ducati (Next Bike) and Indian Motorcycle (Harmony Fabolous).

The Naza Group’s involvement in the automotive industry isn’t just limited to consumer sales, as it also has a concession with the government as a fleet supplier, as announced earlier this year. “The DNA of the Naza Group is automotive, so even if we part ways with the likes of Kia or Peugeot, while it will take way significant revenue from the group, we can still be in the automotive business, bigger and stronger in other areas,” said Nasarudin.

The group also has a stake in Naza Automotive Manufacturing (NAM), which operates an assembly plant in Gurun, Kedah with an annual production capacity of 50,000 units and was set up at a cost of RM700 million.

Previously in February 2018, the PSA Group acquired a 56% majority stake in NAM, as part of plans for Malaysia to be the export hub for the ASEAN region. With Naza Group looking to offload Kia and Peugeot, there have been questions about what will happen to NAM, which is likely to have excess capacity and less than encouraging books.

According to data from the Companies Commission of Malaysia (CCM), the PSA Group now has a larger 61.4% equity interest in NAM, with Naza Group’s stake reduced to 38.6%. As at end-2018, NAM suffered an after-tax loss of RM1.69 million on revenue of RM56.92 million.

Nasarudin says the profits in the subsequent years have a lot lower than 2018 due to razor-thin margins and a challenging landscape, where the Naza Group has little say in key decisions. “Margins are limited, and even pricing is determined by the principal, so there are a lot of risk factors,” he explains. This could see NAM being part of the group’s sale of key auto assets besides Kia and Peugeot.

“My goal is to have this whole transformation exercise finished by December this year, and [to have] until the first quarter of next year to really chart the way forward for the group. We need to craft out what is the investment strategy for the group moving forward. With all these divestments in place, we need to be selective of how we want to move the group forward,” said Nasarudin in conclusion.

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