Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and its principal Daihatsu Motor Co of Japan are studying plans to increase the production of high-value automotive parts here primarily for export.

This is part of the second national carmaker’s two-pronged strategy to increase shipments overseas, not only of completely-built-up (CBU) vehicles but also high-value parts,  Perodua managing director Aminar Rashid Salleh says in an interview with The Edge.

“These high-value parts are engine and transmission-related, and may be exported not only to Daihatsu’s but also Toyota’s production facilities around the world. This is our response to the National Automotive Policy (NAP) review, which has given good incentives for the local manufacture of high-value parts for export,” he says.

Under the NAP review announced in October 2009, the government will provide 100% pioneer status for 10 years (previously five years), or investment tax allowance of 100% for five years (previously 60%) for manufacturers of automotive transmission systems, brake systems, airbag systems and steering systems.

There are additional tax incentives if the parts are exported.

“Apart from the tax incentives, we would also benefit from being able to lower our production cost here, resulting from better economies of scale. In our business, a 10% cost reduction resulting from big volume production is quite significant,” says Aminar. He declined to provide details, such as the value of the investments involved.

Monetary incentives aside, the business proposition makes sense for Perodua’s principal because Malaysia hosts the largest production facilities for Daihatsu Motor outside Japan, says Aminar.

It is also a natural progression since Perodua’s auto manufacturing activities in the country are already extensive. All its vehicle models produced here — a total of about 170,000 units annually — involve parts localisation of at least 80%.

If the parts export plan materialises, it will be a big boost to Perodua, an automotive joint venture established between Malaysia and Japan in 1993.

The export of high-value auto parts, which is currently negligible, may have more potential than the export of CBUs for Perodua, which ships out only few thousand units a year. Last year, for example, it shipped out only 4,400 units.

In 2009, says Aminar, the group exported only about 2,000 cars under its own brand (60% to the UK market), and some 2,400 units (mainly the MyVi model) with the Daihatsu badge to Indonesia.

It is worth noting that Perodua was only responsible for the shipment of the 2,000-odd units under its own brand. The export of 2,400-odd units with the Daihatsu badge was done by its 49% owned associate, Perodua Auto Corp Sdn Bhd (PACB).

PACB, the manufacturing arm of the group, is controlled by the Japanese principal, which has  majority interest or 51% equity.

To recap, Perodua is 73% owned by local parties, namely UMW group (38%), MBM Resources Bhd (20%), Permodalan Nasional Bhd (10%), and Daihatsu (M) Sdn Bhd (5%). The remaining 27% is owned by Japanese parties — Daihatsu Motor Japan (20%) and Japanese trading house Mitsui group (7%).

Perodua itself doesn’t manufacture vehicles but it owns 49% interest in PACB, the manufacturing arm, in which Daihatsu and Mitsui control 51%. In essence, Perodua controls the domestic distribution arm while holding a minority, but still substantial, interest in vehicle manufacturing.

“Perodua can only export and sell vehicles to overseas markets where Daihatsu doesn’t have a presence. These are countries such as Singapore, Brunei, UK, South Africa or Thailand. In markets where Daihatsu has a presence, such as Indonesia, it would be PACB that does the exporting,” says Aminar.

The agreement has limited Perodua’s scope of export in terms of CBUs. But even PACB’s export volume to Indonesia is small because compact vehicles are generally not top sellers in that market, which favours seven-seater vehicles or MPVs. Also, Daihatsu and particularly its parent Toyota, have manufacturing presence in many countries, thereby reducing the need to import CBUs from PACB or Malaysia.

In such instances, the manufacture and export of high-value parts from Malaysia, by Perodua or PACB or another joint venture vehicle, may have broader scope.

Under the common-parts sharing concept, parts manufactured here can be used not only for the production of models sold in the domestic market, but also for other models produced and sold by Daihatsu or Toyota in other markets.

Nevertheless, Aminar says efforts are also underway in Perodua to increase its CBU exports by exploring new markets such as Thailand and South Africa. Thailand could be a key export market for Perodua, replacing the UK, where the company is considering pulling out of due to Europe’s strict emission requirements.

The current year will be a busy one for Perodua, says Aminar. Plans to increase manufacturing of high-value parts for export, identifying new CBU export markets as well as preparation for the launching of a new model in 2011 are all at the planning stages concurrently.

So, the next few years will be an exciting time for the company as these plans are implemented.

This article appeared in Corporate page, The Edge Malaysia, Issue 791, Feb 1-7, 2010