MTB is ready for AFTA

When Malaysian Truck & Bus Sdn Bhd (MTB) signed a Memorandum of Understanding (MoU) with Isuzu Motors Ltd of Japan for the development of a Malaysian National Commercial Vehicle (NCV) in May 1996, the Malaysian and regional economy was in top gear. The future looked good and sales were rising rapidly. Adaptation of a popular Isuzu model, was carried out briskly and it was envisaged that 1,500 units a month would be a realistic volume.

But the dark clouds of economic havoc that started in Thailand blew south by the end of 1997, just as the first Malaysian NCV – the Hicom Perkasa – was due to be launched. Nevertheless, the company went ahead and officially introduced the model to a rapidly declining market. That year, MTB turned out 3,355 Perkasas… but only 625 were sold.

The following year, the worst for the Malaysian auto industry, saw MTB drastically cutting back on production – to just 493 units for the whole year. Though the commercial vehicle sector was essentially ‘dead’, 1,323 units were sold for a 28% share in the light-duty segment.

Last year, as the glimmer of recovery started to appear, demand rose again and MTB sold almost double the volume of 1999. While production of the other makes from the same plant remained low, output of the Perkasa was stepped up and accounted for 62% of the 3,549 vehicles (which included 4WDs like the Mitsubishi Pajero and Isuzu Trooper and also Mitsubishi vans) that rolled out of MTB in 1999.

“It was a very tough way to start,” recalled MTB’s General Manager of the Product & Marketing Division, Abdul Harith bin Abdullah. But like the rest of the management team, he took it philosophically and feels the experience was useful ‘training’ for the tough competition that is expected when AFTA (the ASEAN Free Trade Area) comes into being by the middle of this decade.

Although the Hicom Perkasa is a significant model for MTB, its activities also include contract assembly of as many as 16 different models with 55 variants from customers that include Isuzu, Mitsubishi, TATA, Iveco and Pinzgauer.

MTB, which has a total investment cost of RM272,770 to date, was actually a spin-off from the original AMM factory in the Peramu Jaya Industrial Estate near Pekan, Pahang. In 1994, it was created when the former Hicom Commercial Vehicles Sdn Bhd bought over a part of the DRB-Hicom-owned AMM plant, then 11 years old. The aim was to separate production for more efficiency; AMM would concentrate on passenger cars and light pick-ups, while MTB would do the ‘heavy stuff’ plus 4WDs and other commercial vehicles.

With assistance from Isuzu Motors of Japan, which also took on a 20% equity in MTB, the production facilities were upgraded to a multi-model system with the aim of creating the most advanced manufacturing facility in Malaysia having a maximum capacity of 60,000 units (on two shifts). It was also clear that the long-term plan for MTB should be to become a regional vehicle assembly hub.

The capabilities of MTB obviously impressed the Prime Minister who urged MTB, to come up with a NCV. The obvious technical partner was Isuzu which already had a close association with the DRB-Hicom Group going back to the early 1980s.

“Basically, we started off with the Isuzu NHR model and made changes to the front end and doors. The bigger effort was in maximising localisation of parts, including stamping of panels,” explained Encik Abdul Harith. The efforts have paid off because the Perkasa has 465 locally-made components or 50.35% according to the definition of the Local Material Content Policy. Within the next three years, the aim is to reach 80%.

But while the Perkasa has ‘national vehicle’ status, it does not have the same sort of advantages as national cars because all commercial vehicles (chassis-based type) are not subject to import duty nor excise duty. “So there was nothing extra we could ask from the government,” he said, but MTB does have an investment tax allowance incentive.

In spite of the severe downturn of 1998, when turnover fell almost 70% to just RM35 million, MTB did not abandon the NCV although it engaged in many cost-cutting measures. Neither did it lay off staff although it did reduce their pay by half during the months that the plant did not operate.

“We did not want to create more problems for our workers by having a retrenchment exercise but we did have to find ways to reduce our fixed costs,” explained DRB-Hicom Chairman Tan Sri Dato’ Seri Mohd Saleh bin Sulong. “So what we did was to work for one month, close for two months and then resume in the fourth month, which made sense because one month’s output was enough to last for three months.” Manpower levels were reduced slightly as some workers found other jobs but DRB-Hicom’s responsible initiatives ensured that the general livelihood of people in the area was not hit so badly. Its efforts were commended by the state Menteri Besar, Dato’ Sri Adnan Yaakob, who pledged continued support for the company in its efforts to develop the industrial estate further.

With the bigger objective of becoming a regional player along with AMM, efforts were stepped up to sell the Perkasa overseas. To date, the number of units actually shipped has not been big – just over 200 units in total – but there are signs that demand will grow quickly in coming years because the Perkasa is recognised as being good value for money.

Of great interest is the Australian market where the Perkasa is presently undergoing testing to determine compliance with the tough Australian Design Rules (ADRs). According to Encik Abdul Harith, the vehicle has passed in all areas except fuel tank integrity after being dropped from 10 metres. MTB is making the necessary modifications to meet the requirements and ADR certification should be obtained soon.

While many other parties in the Malaysian automotive industry are apprehensive about AFTA (and would even prefer to postpone it), MTB declares itself ready for the challenges. It is confident because it believes that it can become a significant commercial vehicle producer in the Asia-Pacific region through strategic alliances, particularly with Isuzu.

Even though Isuzu has a big operation in Thailand, that factory is under the control of Mitsubishi Motors which is also a shareholder. The Indonesian operation is relatively small and geared towards MPV-type models which leaves MTB as the best facility for Isuzu to make use of. Logistics are also good with the nearby Kuantan port located adjacent to the shipping lanes across the South China Sea.

“We are well positioned in the region and it is already in the plan that Isuzu will use MTB as a production base for certain types of models,” said Encik Abdul Harith.

While MTB would focus on promoting the Perkasa since it manufactures the model, it is also having discussions with other companies to choose it as a regional re-export centre for the Asia-Pacific region. AMM is also aiming to position itself in a similar manner to become a platform for the export of variety of makes and models. Thus, the DRB-Hicom Group (and the Pahang government) is hoping that the Peramu Jaya Industrial Estate will become similar to Thailand’s automotive hub at Rayong which, coincidentally, is also on that country’s eastern seaboard.

DRB-Hicom’s substantial focus on developing its automotive business indicates its strong desire to not only remain in the business but also continue to be a leader even after selling off Proton. As Tan Sri Mohd Saleh has explained, the main reason for selling off Proton is because DRB-Hicom does not have the greater financial resources required to take the national car company further. Letting Proton go and undertaking a restructuring will enable DRB-Hicom to become leaner and more competitive in preparation for AFTA.