14 May 2012
MBM Resources's 20% owned Perodua sees dip in car loan approval rate since new lending rules were implemented on Jan 1 - Managing Director Datuk Aminar Rashid Salleh
(MBMR opening stock price today (14.5.2012) was RM 5.33)
THE numbers have been worrying for Perusahaan Otomobil Kedua Sdn Bhd (Perodua). The country's largest manufacturer of cars has seen its sales dip worryingly in the first few months of the year after new loan rules were issued.
Its managing director Datuk Aminar Rashid Salleh walks over to a large lourved blinds covering a big window in the meeting room at the company's headquarters. Pulling up a section of the blinds, he gestures towards a stockyard where cars fresh out of the production line are stored.
“Look at our stockyard. If you had come one week ago, it would've been up to the brim (full), so much so that we had to park our cars on our test track,
Aminar feels Perodua has to restrategise if it intends to keep its market share.
“Why you see patches is because we stopped our plant for one week. So there are no new stocks coming in,” he tells StarBizWeek in an interview recently.
The empty plots of parking space in the stockyard after a planned shutdown of the manufacturing plant alleviated some of the stock pressure the company has been facing but it's only temporary in nature.
The situation at the Perodua plant belies a bigger problem that has been caused by a lower loan approval rate after the responsible lending guidelines came into force this year.
The company's dealers and branches, which are responsible to sell the cars to its customers, have to keep stock and it's here where inventory has built up. Perodua has about 171 dealers and 70% are independent. There are about 2,000 sales advisors (SAs) working for Perodua.
Aminar says the company's independent dealers are now seeing the level of stock rise to 1.1-1.2 from a target of 0.8 or 0.9 for a month's stock.
“Some of the SAs are already crying. I was in Kota Kinabalu last weekend. I met one lady SA who said she submitted nine applications to the banks but only got approval for two,” he says.
Effects of new loan rules
The issue for Perodua is that demand for its cars has not waned. Bookings, an indicator of interest from customers, have been strong from Perodua's point of view.
“Bookings even during these difficult times (in the last four months) are still strong. We're doing 18,000 or 19,000 (bookings). There was a month when we even reached 20,000 (in March).
“Bookings are not an issue. People are still eager to buy vehicles. But when you look at registrations, you begin to see the difference.”
The Perodua stockyard where cars fresh out of the production line are stored.
Since much of sales are done through bank loans, the new rules which are based on disposable income rather than gross income have seen the approval rate of people wanting to buy a Perodua car dip.
Prior to the new guidelines, Perodua says loans normally took two to three days to approve. That time is monitored by Perodua.
In December, the percentage of loans that were approved within a week of submission was 80%. The load time for approval taking two weeks was 15% and three weeks was 5%.
After the lending guidelines were announced, loans approved within a week dropped to 55%, two weeks to 27% and three weeks 9%. Loans approved after three weeks was 9%.
The situation improved in February where loans approved within a week rose to 60%. In March, 61% of loans within the first week were approved and that percentage improved to 66% in April.
“A big thank you to the banks, but as I said, it's still not back to normal. And our concern is the 2-3 weeks. You add 23% and 9%, that's 32%, when in the past we used to do 20%.
“We acknowledge that the banks are also adjusting. But we are appealing, if this can be hastened, it would help us at the dealers and the outlets, and more importantly, the customers.”
That drop in approval rates has had a telling effect on sales. Aminar compares sales in 2012 to 2010, a record year for Perodua when it sold about 189,000 cars, and not 2011 when production was affected by the tsunami in Japan.
He says sales in April was 14,300 units and the company's flagship model, the Myvi, was not affected.
It's the lowest priced cars the Viva that has seen the biggest decline in sales, dropping by 24% from April 2010. Sales of the Alza is 23% lower.
“Our entry level model of the Viva is the one that is badly hit. The Elite (highest range Viva) is still okay. But as we go lower (the 850cc and 660cc), these are the ones most affected,” he says.
The Viva 660 was never a big seller nor a money earner for Perodua, but Aminar says it's part of its social responsibility to the nation as the Government had requested Perodua build a car for the lower income group.
“For us, financially, it's not a model that we're making money from. Frankly speaking, that model is a non-profitable model. But we continue to manufacture it as part of our responsibility,” he says.
The sales dip has also followed the pattern of regional economic strength, Sales in Sabah and Sarawak are worst hit followed by the east coast and the northern region.
Aminar says people's inability to buy the entry level Viva in those regions is a problem because of the requirement for small vehicles since the public transportation system in those areas are lagging behind the more developed parts of the country.
He says people there need a small car to get around and hence, that's why its Viva is a very popular model in those parts.
Aminar feels the problem is compounded by the fact that people there, a lot of them farmers and small traders, are not salaried people and it's difficult for them to come up with the necessary documents demanded by banks these days.
“But based on records, they are still able to make their monthly payments. And I also like to stress that our NPLs are low. For Perodua overall, we are below 1%,” he says.
“So we are asking them (the banks), we are pleading with them, you know, please be fair. Let's bring it back to the pre-guideline level.
“Also, my appeal is for the regions that are mostly affected if they can be more considerate. Our sales advisors are facilitating the new changes. They are now evaluating the documents earlier,” he says.
Perodua has taken its case to the Prime Minister but has so far received no direct feedback.
“The central bank has asked what's the problem, is it with the other banks? But let's be fair to the central bank. I think it's coming down more to the implementation the individual banks themselves,” says Aminar.
“I have politely suggested, why don't the banks, including the central bank, come down and visit our stock yard, our dealers and do a reality check to see what's happening? Talk to them. Yes, things are improving but not to the level that we want.”
Dealing with lower approvals
The drop in loan approvals has meant that Perodua is behind in its sales target for the year, which is kept steady at the previous record of about 189,000 vehicles.
Aminar says the company so far this year is 6,000 units down against its target for this year but is not revising its plans with the hope that things will go back to normal within the next two months.
“Of course, it means we really have to push in the second half of the year. For now, we're maintaining our numbers... unless in the next one or two months, we don't see any improvement then we have no choice,” he says.
Should the approval rate of loans not climb back to the 80% range within the first week as was the case previously, Aminar feels Perodua has to restrategise if it intends to keep its market share.
“We may not get the volume we want, but I think trying to sustain reasonable market share is something we have to look at,” he says.
One area the company will look at is fleet and corporate sales business where there is room for improvement.
“I have mentioned that we are starting fresh with our pre-owned business. The GM has come on board and he's helping us put up the structure and the reorganisation, put up the strategic roadmap for the next three to five years.
“This in a way will help, because trade-ins are on an increase. The focus will be more on trade-ins, giving value for money, like for one-stop centres.”
By going into the used car business, Perodua will be able to capture the demand of its vehicles among the public.
The Myvi, he says, is in high demand. So is demand for the Kembara and Kancil.
“This will help defray some of the shortfall in our vehicle sales,” he says.
Another focus will be in the area of after-sales. After the Myvi was introduced into the market, Perodua hit the jackpot. Sales shot up but the after-sales and workshops had not grown in tandem. Perodua is addressing that and is opening new dealerships and expanding its workshops.
“We are also into the body and paint business. Of course, we don't like to see our cars involved in accidents. But the reality is that accidents do happen. So we would like those vehicles to come back to our own workshops.”
All of those initiatives would be geared towards customer retention, keeping inline with its tagline “Building cars people first.”
Perodua is also embarking on a programme it calls the “Perodua Story” where it is reaching out to its customers. Perodua has sold more than 2 million vehicles since starting out 19 years ago.
“Some of them, we may have lost them, for what reason, whether in sales or after sales. So we're trying to reach out to them please come back, tell us your story. I'm sure there are a lot of stories to share with us, whether from the product point of view, whether there were challenging and difficult times, we want to hear, so that we can improve further.”