Kia’s switch from Naza to Bermaz might not bring much change, here’s why

Although yet to be announced officially, Kia’s impending departure from Naza Kia Malaysia is an open secret.

The public don't have a lot of nice things to say about Naza Kia Malaysia’s handling of the Korean marque, and many netizens have expressed hopes that the Korean marque is in for a better future under Bermaz, but are they being overly optimistic?

Since the mid-2000s, the new generation of Kia cars have won the Korean marque a lot of fans worldwide. Some say today’s Kia cars, especially the premium ones, are better than a BMW or a Mercedes-Benz.

However the reality of the Kia brand in Malaysia is quite the opposite.

So much for being billed as a City/Vios killer by fans, the 2009 Kia Forte was merely a flash in the pan. As a C-segment sedan that’s priced like a B-segment one, with an interior that’s good enough to rival contemporary entry level Audis, the Forte should have been a runaway success but it didn’t.

Sales of Kia cars in Malaysia peaked in 2006, with 35,998 units sold – that is if you consider rebadged Kia Carens (Naza Citra) and Kia Carnivals (Naza Ria) as Kias.

During its heydays, Naza Kia’s sales were driven mostly by the Naza Citra, whose low prices allow it to regularly harass the Toyota Avanza, then the best-selling 7-seater in the country.

This was an era when Kia was also represented in the commercial vans sector. Long before Chinese vans entered the segment, the Kia Pregio was giving the Toyota Hiace a run for its money.

If you were to consider only Kia-branded cars (2014 onwards), then the Kia brand peaked in 2014, with 9,938 units sold – nearly half of it contributed by the Kia Cerato.

Whichever way you dissect it, the conclusion is still the same – the Kia brand here is down in the dumps, with just 3,432 cars sold in 2019.

It’s easy to point fingers at Naza Kia Malaysia for the Kia’s failure to reach its full potential here. But what many don’t realize is that Kia themselves has its own office in Malaysia. Not Naza Kia Malaysia, but Kia Malaysia, an office setup by Kia Motor Company themselves.

The Kia Malaysia office, located in Naza Tower, sharing the same office building as Naza Kia Malaysia, is set up to support and monitor the local distributor. The fortunes of the Kia brand in Malaysia, be it good or bad, should also be attributed to Kia Malaysia.

Of course, we also have to recognize that the Naza family isn’t helping their own cause either. Especially when the family’s private lives dominate entertainment news more than their businesses do in business dailies.

No big change until Kia themselves steps up the game

Netizens point to Bermaz Auto’s success in raising the profile of the Mazda brand, which Bermaz took over in 2008, to be an indicator that it will be able to do a better job than Naza.

Bermaz Auto is the distributor of Mazda vehicles in Malaysia (via Bermaz Motor) and Philippines (via Bermaz Auto Philippines). It also represents Ssangyong (via Ssangyong Berjaya Auto Philippines) and Changan (Berjaya Auto Inc.) in the Philippines

At this point, we want to make a caution against unrealistic expectations.

Kia’s sales in Malaysia has been on a downtrend for more than 10 years, 14 years to be specific. It’s quite unrealistic to expect the new team, whether it’s Bermaz or anyone else, to undo more than a decade worth of damage so soon.

Remember that Bermaz Auto’s success with Mazda is as much to do with Japan’s Mazda Motor as it is from Bermaz Auto.

Mazda has invested into setting up three plants in the region: the Automotive Alliance Thailand plant in Rayong that it co-owns with Ford; the Mazda Malaysia plant in Kulim, which is a 70:30 joint venture between Mazda Motor and Bermaz Motor; and one joint-venture plant in Vietnam, which is its largest of the three.

Mazda has also invested in building cars that are tailored to meet the specific needs of this region: the Mazda BT-50 and Mazda 2 Sedan for example. In short, Mazda jumped in to ASEAN with both feet.

The value of Mazda’s direct investment goes beyond just the Ringgit and Sens. It’s a symbolic gesture to Bermaz that says “I am deeply invested just like you, I am committed to this business too. As a carmaker, my expertise is in manufacturing so I will build the cars. As a local company, you should know the local market best so please do your best to sell the cars.”

All successful brands here have some form of direct investments by the manufacturing principal. The question is this - Is Kia prepared to invest in the same level in Malaysia, and the rest of ASEAN?

UMW Toyota for example, is 39 percent owned by Toyota Motor Corporation, and 10 percent owned by trading company Toyota Tsusho Corporation. Honda Malaysia is 51 percent owned by Honda Motor Co.

Even Volkswagen Passenger Cars Malaysia is owned by Porsche Holding Salzburg, itself a wholly-owned retail arm of the Volkswagen Group.

Nissan and Ford are less competitive here for the same reason as Kia. As all the risk is shouldered by Edaran Tan Chong Motor and Sime Darby Auto Connexion respectively, you can understand why both local companies adopt a more conservative stance. No business owner will want to invest more than necessary into a brand that doesn’t belong to them.

Kia has shown little long-term commitment here

Kia has very little interest in the ASEAN region and consumers here are reciprocating the same, as Kia’s negligible market share in this region shows. The only ASEAN country where Kia is successful is left-hand drive Vietnam (Singapore and Brunei doesn’t count), where it co-owns an assembly plant there.

Kia sold 30,103 vehicles in Vietnam last year, putting it in sixth place, behind Toyota (79,238 units), Honda (33,102 units), Mazda (32,731 units), Ford (32,175 units), Mitsubishi (30,642 units).

No CKD, no point

Changing Kia’s local distributor is not going to make any difference if there are no favourable wholesale prices, or locally-assembled (CKD) models.

If Kia is to be a CBU-only line-up, its fortunes under Bermaz won’t be any different from Skoda, which is now dormant under Bermaz. With no direct participation from Skoda, the imported Czech brand is made redundant as it can’t match the prices of locally-assembled VW models.

The Naza manufacturing plant in Gurun has since been sold to Peugeot’s PSA Group so local assembly there is out of the question.

There’s the option of the Inokom plant in Kulim, which Bermaz Auto owns 29 percent, while Kia’s parent company Hyundai Motor owns 15 percent, but it’s difficult to conclude that this option will be extended to Kia.

This is because Sime Darby Motors, whose subsidiary Hyundai-Sime Darby Motors’ products competes against Kia, owns 51 percent of the Inokom plant.

The Vietnam factor, Korea-ASEAN Free Trade Agreement

There is however, one (maybe one and a half) last card. Korea has signed a free trade agreement with the ASEAN trade bloc and among the member countries, Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand; have agreed to slash import duties for CBU Korea-made cars with engine capacities above 2,000 cc to 5 percent (down from 30 percent, for Malaysia).

Import duties for CBU Korea cars with engine capacities below 2,000 cc will remain at the usual 30 percent. So a Korea-made Kia Seltos won’t be any cheaper, but the Stinger might.

However, in order for the Malaysian importer to enjoy these benefits, Kia needs to play its part by providing the necessary certificate of origin (CO) detailing every part used in the car, which as you can imagine, is very tedious and few manufacturers want to go through the hassle for a small market like Malaysia.

The other potential source of Kia vehicles is Vietnam, where Kia's Vietnamese partner Thaco runs the THACO-Kia plant in THACO Chu Lai Industrial Park. Truong Hai Auto Corporation (THACO) is a Vietnamese conglomerate with a deep focus in the automotive sector.

The THACO-Kia plant already exports Grand Carnival to right-hand drive Thailand, but only in very small volume, numbering only several hundred units a year.

However, Kia has announced that it intends to grow its Vietnam plant into its export hub for the region, including right-hand drive ASEAN markets. All cars exported from Vietnam contain at least 40 percent local/regional content, which qualifies them for zero import duty under the ASEAN Free Trade Agreement.

The THACO-Kia plant now makes the Picanto, Soluto, Cerato, Carens, Grand Carnival, Seltos, and Sorento, but not all are available in right-hand drive.

However, Vietnam-assembled Kia cars will still be slapped with the maximum excise duties in Malaysia, so it still can’t be competitive enough against a locally-assembled Japanese model.

But you know what’s more interesting? THACO also does contract assembly for Mazda and Peugeot, but it’s just an interesting coincidence as THACO currently only makes the Peugeot 3008 and Peugeot 5008, both of which are already assembled by the PSA Group in Gurun.

Let’s not forget the Geely-Proton factor. The era of non-national mass-market brands making headways into Malaysia is over. Even the established Japanese brands like Honda are now just adopting a defensive position instead of aiming for conquest sales like before.

The Koreans definitely can’t match Geely/Proton on price, and the gap in product attributes is very limited, almost non-existent, if not in favour of Geely/Proton. What does the Kia Seltos bring to the table that isn’t already done better by the Proton X50?

So even if the rumours are true, Bermaz Auto is unlikely to want to rush into acquiring the Kia distributorship. It’s an interesting option to consider, but fixing the Kia brand here requires a lot of work and unless Kia themselves are putting their own money in, there is very little upside potential in the near-term.