Malaysian Automotive demand and pricing strategy

When the first Proton introduced in Malaysian automotive market in 1985, Proton Saga appeared to be the cheapest priced car among its competitor in the same market segment Proton !as priced at least "#$ cheaper than non%national makes in the same 1 & to 1 5 litre class With both the lo! price and a dash of national pride !orking for it, the Proton got a rapid hold on the market 'y 1988 the Proton, !ith a model lineup of one, had overtaken all other makes and models and grabbed (&$ of the Malaysian passenger car market

)n 198&, !hen the *national car* !as planned, Malaysia had an annual ne! car market of about 9#,### units, and the market !as gro!ing annually by "#$ +he Proton plant !as designed to produce 8#,### units a year and could be geared up to 1"#,### units 'ut in Proton*s first full year of production ,198-., total car sales took a severe dip to /(,### and ne0t year, due to a !orsening economic situation, 1ust &5,### 2nly in 1988 did the market begin a recovery to 5/,### units, by no! most of them Protons Since then, the market has gro!n steadily to a "##5 peak of /1(,### cars

3overnment policy has kept the Proton cheaper than other makes by the simple strategy of ta0ing the competition, !hile giving Proton e0emptions or rebates from these same ta0es 4uties on packages of parts for assembly into complete

cars in Malaysia is said to average about &#$ Proton is e0empted from most of these

2n 1 5anuary "##8, the postponed%several%times full implementation of an 6S768 9ree +rade 6greement, !hich Malaysia originally signed on to in 5anuary 199", !as to finally have come into effect +he agreement !ould effectively bar practices that discriminate against goods ,including vehicles. that are considered :Made in 6S768; by the use of +ariff and<or 8on%+ariff 'arriers +his !ould practically eliminate most of the price advantage, achieved by !ay of the 5#$ rebate Proton ,and other :Malaysian%made; cars. en1oy on a hefty ,(5 to 1#5$. engine%capacity%related 70cise 4uty applied to ne! cars sold in Malaysia

6s "##8 progressed, this initiative seemed not materialise in order to protect local automotive manufacturer +his derailed these manufacturers* previous plans to use +hailand ,principally. as their 6S768 manufacturing hub, and forced them to reintroduce Malaysian%assembly of some models from =>4 +his move allo!ed these foreign Mar?ues to benefit from better tariff structures applied to such vehicles, in an effort to remain competitive ,in the non%8ational car segment., and to narro! the price difference bet!een their models and e?uivalent ,70cise 4uty rebated. Malaysian%made cars

+he lack of direct competition at Proton models* price points ,in Malaysia. has also allo!ed Proton, for many years, to continue selling very outdated designs,

generally !ith scant regards to providing basic safety e?uipment such as airbags and anti%lock braking in domestic models +his scenario kept Proton left behind in term of ?uality and innovation in its products and not very successful in foreign market, and lack of economy of scale )n "##-, Proton*s sales dropped &# /$ from 1--,118 in "##5 to 115,5&8 for the Malaysian market, indicated a 55$ fall of sales to 9-" & million ringgit, its lo!est in at least seven years +his allo!ed Perodua to overtake Proton as the country*s largest passenger carmaker for the first time, !ith a /1 -$ market share, !hile Proton*s market share fell from /#$ in "##5 to &"$ in "##- 6s at 5une "#1#, proton has only "- -$ of market share, !hereas Perodua has led the market at &1 5$

@nder oligopoly market structure, !hich the number of firms is small enough that action from any individual firms in the industry on price, output, product ?uality, introduction of ne! models, and terms of sale have a perceptible impact on the sales of other firms in the industry +hey are interdependence, and any ne! move is likely to evoke a countermove by its rival

6utomotive industry in Malaysia seems in line !ith !hat 6ugustin =ournot said in his model called :+he =ournot Model;, asserts that each firm, in determining profit%ma0imising output level, assumes that the other firmAs output !ill not change and continue producing the same amount of output in the ne0t period +his is !hat happening in automotive industry in Malaysia Proton tried to

produce more output by penetrating more market in overseas and produce lest cost per unit 'ut it has not been very successful yet as its product lacks of technologies and the ?uality of products produced not as good as its competitors 7ven some of its local market share has been taken over by !orld automotive company such as +oyota, !here their market share has been increased to 1/ 8$ for the first half of this year compared to 11 9$ for the same period in previous year

=artels and other forms of collusion have been practised by some of firms in automotive industry in Malaysia, but not really obvious in term of price standardisation )t is more to!ard to non%price collusion +his can be seen in one of Perodua initiatives Perodua had teamed together !ith 4aihatsu and +oyota to come out !ith ne! model 8# engineers !ere sent to 5apan to !ork on the ne! model and to provide their inputs right from the very start of the pro1ect !hich !as in early "##" What this meant !as that the model !hich is no! to be kno!n as the 4aihatsu 'oon<+oyota Passo< Perodua Myvi 'esides the BC4

personnel, there !ere also Malaysian engineers from the manufacturing side !ho !ere sent to 5apan to !ork simultaneously on the production issues related to the ne! model Such collaboration is necessary no!adays because the cost of developing an all%ne! model is incredibly e0pensive and being able to share the cost makes it possible to price the product more competitively )n the case of the Myvi, Perodua says that it spent around BM"1# million, a fifth of !hat it !ould have cost if it had tried to develop the model alone

+his is part of the international firmsA strategies in avoiding price !ars, reduces their production cost and produced a better output, !here they are for sure cannot reduce the price alone in competing Proton cars as it is protected by government policies Perodua no! has dominated Malaysian market and their

move could affect the decision by other firms in this industry and could be a price leader and set them as a benchmark for product pricing in Malaysia market

References: 1. www.peroduapromosi.com 2. Malaysian Automotive Association, Market Review for 1st half 2010. 3. Dr. Mohd Rosli, The Automobile Industry and Performance of Malaysian Auto Production, Journal o !conomic "orporation 2##$. %. John &etro , www.poei.or'