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After The Sale
Strengthening the automotive industry’s Secondary sector

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by IBR Malaysia
31 August 2015
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Chrome and shiny, new automobiles are a joy to behold. But as tyres roll on tarmac, the years speed by and new technology is discovered and implemented, vehicles can quickly become unsafe and sometimes, even unsightly. The after-sales sector plays a crucial role in the automotive industry’s value chain. In the long run, during the lifespan of automobiles, it is estimated that revenue from after-sales services provides higher profit margins in spare parts, accessories and services than the vehicle sales according to management consulting, technology services and outsourcing company, Accenture.

To another community of enthusiasts however, even just-off-the-line new is not enough; each vehicle needs to meet personal and individual tastes and styles – from tinted windows to bigger or smaller tyre rims to paint jobs. Many of these services, while sometimes available from the original equipment manufacturers (OEM) and OEM-authorised retailers, may often only be available via smaller unofficial workshops and the aftermarket industry – which was worth RM28.5b and employed 250,000 workers in 2012.

Whether from the car manufacturer, OEM-sanctioned retailer or a workshop, the aged vehicle and the personalised one, the aftermarket industry provides spare parts to succeed worn-out and damaged OEM parts and accessories that add value, convenience, comfort, performance, safety or just aesthetics.

The reasons why some of these services may not be available from OEMs vary. It could be because of issues such as the size of the market, age of the vehicle and legality of the modifications – for instance, dark tints – and ignorance about the potential of the market. Meanwhile, aftermarket workshops fees are usually cheaper than OEM after-sales prices.

Critical Challenges

As in all circumstances where there is a significant price difference, as well as high-safety concerns with some components, a critical issue is the quality of products and services offered. In Malaysia, many of the parts and accessories – remanufactured (recycled), genuine or OEM – ‘trusted’ as being of good quality by car owners are manufactured in and imported from outside the country, predominantly Japan and Europe. Following a revision of the second National Automotive Policy in 2009 (NAP 2009), the country’s industry specific development guidelines, the Malaysian government implemented measures to limit the import of used components and mandated tests to guarantee safety. The restriction commenced in 2011, and applied particularly to certain car parts that are automotive safety-critical components, such as brakes. However, such measures also had challenges.

In an article in the Business Times last year, the Malaysia Automotive Institute’s (MAI) CEO, Mohamad Madani Sahari pointed out that while non-restrictive imports are a cause for concern, banning them will pose “a dilemma on the part of the authorities for two main reasons: an increase in the cost of maintenance affordable to the lower income group and insufficient testing facilities in the country.”

 

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Building Blocks

These are some of the challenges that the NAP 2014, due to be implemented this year, aims to resolve. To do so, the policy introduces among others, a remanufacturing roadmap (to enhance sustainability and recyclability of used automotive components) and increases its focus on strengthening workshops through a 4M strategy – Man,Method, Material, and Machine.

This includes the gradual phase-out of importation of automotive parts, while encouraging the research, development, manufacture, and export of high quality, value-added components from Malaysia through loans, incentives and grants and enforcing mandatory standards of production. Another initiative by the Malaysian government is the Automotive Workshop Modernisation (ATOM) scheme.

As part of the Economic Transformation Programme (ETP), ATOM is one of the Entry Point Projects (EPP) under the Wholesale and Retail sector National Key Economic Areas (NKEA). It aims to modernise, enhance and transform the service standards of 500 automobile workshops through expert advice from key players in the industry, as well as a provision of soft loans and grants (up to RM1.13b by 2020) for the purchase of materials and machinery, and for training purposes. The sector is expected to generate RM947m in GNI and create 9,117 jobs.

The key industry players tasked to assist in the programme include the Automotive After-Sales Industry Malaysia (AAIM), Malaysian Association of Tyres Retreaders and Dealers Societies (MATRDS), Automobile Association of Malaysia (AAM) and the Persatuan Pengusaha Industri-Industri Bengkel Malaysia (Workshop Industry Employers’ Association of Malaysia – PPIBM). For these efforts to be effective however, the workforce that will design the parts, operate the machines and manufacture the parts are just as crucial. To this end, the Malaysian government, through the Ministry of Human Resources’ Skills Development Department, tasked MAI with the training and building of the skills necessary for a capable workforce in the manufacturing and aftermarket sectors.

The business potential is massive. Even so, the target of RM2b by 2020 from the export of aftermarket spare parts, and recycled and remanufactured components may be too conservative. With more than 22 million vehicles on Malaysian roads, according to the Nielsen Global Survey of Automotive Demand – over half of them above five years old, a middle-class income group that is becoming increasingly affluent, and a young working population – the government, OEMs and workshops can collaborate to enhance the industry and strengthen exports of automotive spare parts and components from the country.

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