Tan Chong Motor Holdings Bhd.’s recent agreement to distribute Renault cars in Malaysia means the firm will also likely keep the much more important business of selling Nissan cars in the market, Dow Jones reported.
Tan Chong said last month its unit TC Euro Cars Sdn. Bhd. has signed an agreement with Renault s.a.s. to exclusively import, distribute and assemble Renault vehicles in Malaysia, the news agency added.
The report said that, for the past two years there has been market talk that Tan Chong would lose the Nissan franchise, its core business, with analysts saying the expectation was that Nissan would either give the franchise to another distributor or handle distribution on its own.
But Dow Jones said the Renault agreement has helped to allay such fears because, analysts say, the French giant is Nissan’s main shareholder and giving the Malaysian firm the exclusive right to distribute Renault cars means it is also happy with Tan Chong’s sales record of Nissan vehicles.
But Dow Jones noted that the deal with Renault itself is unlikely to significantly boost the company’s profit in the next two years.
“We see minimal impact on earnings in the near term. Last year, Renault’s share of the passenger car market stood at a mere 1% (of the imported passenger car market segment),” a senior analyst with local brokerage firm Mayban Securities told Dow Jones, which noted that only 326 Renault cars were sold in Malaysia in 2002.
Dow Jones said that assembling and selling Nissan cars is Tan Chong’s core business – in 2002, the firm sold 15,904 Nissan cars in Malaysia, down marginally from 16,043 units a year earlier. For the first four months of 2003, the company sold 5,182 units.
Nissan is the second most popular foreign car make in the Malaysian car market after Toyota, Dow Jones added.
Under the deal with Renault, Tan Chong will invest between MYR30 million to MYR40 million and production of vehicles is expected to start in June 2004 with an initial volume of between 100 and 200 units per month, the news agency said.
“The venture is not expected to contribute significantly to the group’s revenue and profit in the immediate term, but is expected to produce reasonable rates of return over the medium term,” Tan Chong said, according to Dow Jones. The agreement is for six years and may be extended to another six years, the report added.
According to Dow Jones, analysts said the Tan Chong-Renault deal may also be hit by expected changes in Malaysia’s automotive policy.
“The impending government announcement on the auto industry post-AFTA could yet throw a spanner into the works,” a local analyst told the news agency, referring to the Tan Chong-Renault deal.
The changes are expected to include a sharp reduction in import tariffs, something that could make locally-assembled cars uncompetitive, Dow Jones said.