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.