Stiffer competition likely, especially for below-1,800cc segment

PETALING JAYA: The entry of foreign luxury car manufacturers, the latest being Volkswagen AG (VW), will likely result in a shake-up of sorts for the local automotive industry, as customers will now have access to some new models with affordable price tags.

"If these players also offer passenger cars below 1,800cc, it will lead to more intense competition in the local automotive market, especially for the below 1,800cc segment. Ultimately, it's the customers that win," said an analyst.

On Tuesday, DRB-HICOM Bhd signed a collaboration and licence agreement with Volkswagen AG to manufacture VW cars at the former's production plant in Pekan, Pahang.

Local assembly means prices of the cars will be cheaper. The manufacture of the first VW model is scheduled to commence in the first quarter of next year.

"Dominant players within this (below 1,800cc) segment will have to fight harder to maintain or grow their share of the profit pool. They need to become more innovative and competitive," the analyst said.

DRB HICOM and VW have decided that the first cars to be rolled out of the Pekan plant will be the Passat and Jetta models. Neither party has revealed the engine capacity of the vehicles.

According to Christian Klinger, VW's member of the board of management for sales and marketing, the Passat was launched at the Paris Motorshow earlier this year.

If this information is anything to go by, the seventh generation Passat that was launched at the Paris Motorshow comprises a range of advanced and highly efficient petrol and diesel engines.

The petrol line-up comes with 1.4, 1.8, 2.0 and 3.6-litre engines while the frugal diesel range comes with a 1.6-litre engine. The Jetta is likely to be above the 1,800cc range.

Given that the segment below 1,800cc is already over saturated with many makes, customers looking to upgrade would be more inclined to graduate to the luxury segment, said another analyst.

"The only thing more attractive than a luxury car is a luxury car that's more affordable," he said, adding that the luxury segment would become more attractive to prospective buyers, going forward.

"On a broader scale, the entry of a renowned car manufacturer will also spur the introduction of new technology and technical expertise, create more employment opportunities and encourage more foreign direct investment into the county," the analyst added.

HwangDBS Vickers said in a research report the tie-up with Volkswagen would help bolster sales for DRB-HICOM in the medium term.

"We have not imputed any earnings contribution from VW or factored it into our standard operating procedures value.

"In our view, growth in the medium term could be exponential when production ramps up to include Asean markets. DRB-HICOM will also have the first right of refusal for new VW passenger cars in Malaysia."

According to HwangDBS, DRB-HICOM's VW passenger cars sales in the 10-month period ended October rose to 1,501 units from 501 in the previous corresponding period.

The Passat, Polo and Jetta contributed 348 units, or 23%, of sales. The best-selling Golf accounted for 48%, it said.

- The Star Online