Thursday, 28 January 2016

TPP the road to bigger export marts

Trans-Pacific Partnership Agreement, or TPPA, is currently being debated in Parliament and all parties are paying particular interest on the eventual decision at end of the Parliamentary process on the agreement, in particularly the business community.
A lot has been said about the TPPA in most communication media on the advantages and the disadvantages in Malaysia joining the trade pack.
Undeniably there were parties whom have express neutral opinions but in general opinions were expressed, albeit by individual or by group, were centred mainly on their respective areas of interest, business or otherwise.
On a similar accord, there are splits in opinions amongst populace in other member nations whose governments are in favour of joining the TPPA.
The US administration and the Canadian government too are not short of opposing criticisms by those who perceived TTPA may affect their business unfavourably.
In 2014, the USA produced some total of 11.8 million passenger vehicles while Japan produced some 9.9 million. In the same year, the total industry volume (TIV), or total sales, in the USA was 16.6 million and Japan's TIV was 4.7 million, while Malaysia’s TIV was a mere 0.66 million units.
The above statistics portrait the trade imbalance that exist between the two biggest automotive producing nations and most opinions amongst industry players of both countries are centred on neutralising this automotive trade imbalance.
Although it can argued that great numbers of the Japanese total production volume were manufactured in the USA as their direct investment, the same cannot be said of USA producing their vehicles in Japan.
The agenda of the TPPA is therefore to create a "level playing field" so as provide wider opportunities for TPPA member nations' automakers.
US automakers have in pass attempted to penetrate the Japanese market but to no avail not due to trade barriers, which was non, but because Japanese customers prefers small and more fuel efficient vehicles. Perhaps Japanese patriotism is also at play where customers preference were skewed towards Japanese made cars.
Another aspect of discontentment amongst US automakers is the existence of the “non-tariff barriers”, in particular the imposition of arbitrary standards on US cars that keep them out of some major markets.
Several countries in the TPPA negotiation have in the past, using currency manipulation to gain an unfair trade advantage. Automakers are in contention that TPPA must address the potential to use currency manipulation to drive up the costs of cars.
Another point of contention, especially expressed by the Canadian automakers, is the amount of local content in vehicles produced by a TPPA member country to qualify for import tariff-free has been lowered to 45 per cent.
This may imply that automakers can incorporate parts that are sourced from low-cost non TPPA member country, such as Thailand and China, in their vehicles and still export them tariff-free into Canada whose annual TIV ranges about 2.3 million.
The relevance of the above discussion is to portrait the level of arguments amongst the automakers in USA, Japan and Canada who see the formation of TPPA as a strategic means of expanding their business both domestically and amongst member countries.
Their arguments are insistence on using TPPA as a platform to remove trade barriers and to infiltrate the bigger markets that exist in the member countries, outweighing the fear of losing their respective home market.
Being a country having a small TIV, Malaysian automakers and vendors should see in the same light trying to explore the advantage of a bigger export market TTPA has to offer, especially the local parts and components manufacturers whom are desperately require bigger order volume to prosper.

Thursday, 21 January 2016

Driving through local and global economic bumps

Looking back, Malaysia automotive industry was not affected during the global economic downturn due to financial crisis in 2008-2009 as much as when compared to the East Asian financial crisis that occurred in 1997-1998.
This factor demonstrated that depending on the cause some sectors of a nation economy may endure economic downturns.
Domestic car sales figure for 2014 and 2015 were around 666,000 and 667,000 respectively.
The indicative of the fact that the local automotive market remain stable in 2015 despite unfavourable economic situation which started sometime late 2014.
However what in store for the year 2016 and the coming years is not that easy to predict as the global economy, affected by the US interest rate issue and China's declining GDP, seems willpersist. In addition 2016 would be a very challenging year for the country following the decline in the price of crude oil and the depreciating Ringgit.
Observations made during the last few economic downturns shows that fall in "Total Industry Volume (TIV)" in the vehicle market ranging from 10 per cent to 40 per cent, according to country and region, has proved detrimental to the automotive industry. Henceforth the appropriate strategy to ensure the sustainability of the local automotive industry during economic downturn is to maintain, or increase, its annual TIV figure.
While local car makers can contribute as best as possible by producing quality vehicles at affordable prices, on the other hand consumers should continue to support the locally produced vehicles with higher local contents.
Ability to sustain the TIV will secure local vendors with economic production volume to remain in operation supplying parts and components, and even substitute those imported parts saving Ringgit foreign exchange.
However, vendors must be efficient and competitive to ensure parts and components are manufactured at the lowest price possible and this can be achieve by strategizing new and lowering breakeven point of their respective operation.
Capacity utilisation needs to be stringently scrutinised and accordingly trimmed to reduce breakeven point.
Vendors at all levels, or tiers, should revisit their respective business plan and dynamically incorporating new market scenario in accordance with the economic situation. Quick reaction on any unfavourable event that may occur will secure the respective company's sustainability.
To help sustain the TIV figures during this economic downturn short term review on the taxation scheme by the authority is favourable directing towards ensuring more dynamic market condition and vehicles pricing with incentive to increase local content procurement.
Financial institutions have a major role to play by providing attractive rates for new car buyers with practical and reasonable loan terms and conditions during this trying time to assist in the TIV achievement by the automotive industry.
Promoting locally produced parts and components by repair and maintenance workshops are equally important to assist in increasing the production volume of local parts and component by the local vendors.
Imported parts may no longer be competitive with the current Ringgit depreciation, however customers preference are the determinant factor to ensure locally produced parts are installed in their vehicles without which the effort to increase locally produce volume may be futile.
The ability to maintain the employment of the current workforce will also help ensure that the automotive industry remain competitive in capturing future automotive businesses in the regions.
All these measures can help sustain the local automotive industry during periods of economic uncertainty.

Thursday, 14 January 2016

Enhancing values of reused parts via remanufacturing

Despite the uncertainty on their safety aspects, the "reused" or commonly known as "reconditioned" parts and components are popular amongst local motorists for their vehicles maintenance practices.
Sales of these reused parts have since mushroomed and are attributed to economic reason being one, while the other being a common believe that it is only logical and economical to use reused parts and components if the cars are old.
Demand for these reused parts and component will continue to be on the rise as the current average "end-of-life" age of local passenger vehicles is 20 years.
Reused parts and components trading has started in the local scene some 20 years ago and has developed to become the import and re-export hub for the region.
Quality used parts are brought in from established remanufacturers such those from New Zealand, Australia, China, Korea, Germany, the UK and the largest are from Japan which made up 80% of the total imports. While majority buyers for the parts are from the Middle East and the African Nations.
Currently it is estimated that Malaysia imports some total of USD200 million worth of reused parts and component annually.
While some 30% are for local consumption, the balance 70% are re-export without much value added activities carried out on the parts and components prior to exportation.
Realising the importance of the used parts industry with its promising business potential, NAP 2014 is resolute to transform the sector to become the regional hub for reused parts and components production in the region. This can be achieved through a more organised "remanufacturing" industry structure.
Malaysia has the potential to build a strong remanufacturing industry with its existing manufacturing base, and the current availability of an established and sound reused parts industry.
Transforming the existing reused parts importers and re-exporters to incorporate more value added activities through remanufacturing of the imported parts will enhance the export values of those parts. The agenda may contribute a further RM3.2 billion to the total automotive export 2020 target as envisaged by the NAP 2014.
However for the remanufacturing industry to flourish, the following initiatives and measures are essential; Skills development for remanufacturing, establishment of a quality control framework around an official remanufacturing definition and quality seal for remanufactured products, clarification on trade conditions for remanufactured goods and promotion of the supply and demand for remanufactured products through environmental policies.

Strengthening supports for pilot companies in automotive parts and components remanufacturing and promotion of qualified remanufactured products will further help to boost remanufacturing development in the country which will bring economic benefit in the longer term.
In addition development of peripheral industries in support of the remanufacturing activities, such as; parts and components collectors, professional recyclers, disassembling and cleaning operators are equally important to help in enhancing the efficient operation of the remanufacturers.
In this respect establishment of "Authorized Treatment Facilities (ATF)", with an appropriate framework, are essential to assist in providing the parts and components input to the remanufacturing activities.
However, public understanding of remanufactured parts and components and their terms and conditions for use is equally important.
Clear definition of the term "remanufactured" and its relative differences to reused, refurbished or repaired part must be made well understood.
European Association of Automotive Suppliers (CLEPA) defines a remanufactured part as a part that fulfil a similar function to the original part, remanufactured using a standardised industrial processes in line with specific technical specifications. The processes incorporate defined core management standards and remanufactured part is warranted as a new part.

Thursday, 7 January 2016

Remanufacturing of auto parts, components to generate new opportunities

It was recently revealed that there are more than 22 million vehicles on the road in Malaysia, with more than five million older than 10 years.
Taking an average of 600,000 new vehicles sold per year in the last five years, it is reasonable to estimate that there are some 19 million vehicles owned by the Malaysia populace are more than five years old.
It is also reasonable to assume that those who own a vehicle of more than ten years old would likely to prefer the “reusedparts” for their parts failure replacement.
Some 50 per cent of those driving more than five years old vehicles too would prefer used parts for their vehicle maintenance.
The above estimation shows that there are about 12 million vehicles nationwide whose owners may choose “reused”, or more commonly known locally as the “reconditioned”, parts and components for their vehicle maintenance.
On the other hand there are some 14,000 automotive repair and maintenance workshops that are registered with the local councils spread throughout the country which can be the promoting agents in the use of reconditioned parts and components.
This reflects the quantum and opportunities for businesses of the reconditioned parts and components services and supply within the aftermarket sector of Malaysian automotive ecosystem, providing jobs opportunities for the local workforce.
The realisation on the importance of the reconditioned parts and components industry is reflected in the National Automotive policy, NAP 2014, where greater emphasis is given to promote and to encourage the development of the local reconditioned parts production locally or globally known as Remanufacturing.
While encouraging a cleaner and environmentally friendly local aftermarket sector, the 4R2S approach will be adopted towards the development of the reconditioned parts and components industry.
The 4R activities shall encompass the development and enhancement of the repair, reused, recycle and remanufacturing of the used auto parts and components.
2S will focus on the development and enhancement on proper use of the “reconditioned” parts and components within the auto services and supply network.
Remanufacturing, an emerging industry of strategic importance globally, is key to the successful development and implementation of 4R2S.
Remanufacturing is a process where used parts are disassembled, cleaned, repaired, and reassembled to be used again on vehicles.
In comparison to the manufacture of new parts, remanufacturing is estimated to save energy by 60% and raw materials cost by 70%.
Remanufacture ensures the same product quality, durability and performance comparable to those of new components.
In addition, accessibility to “cheaper but almost like-new” components will be the main benefit gained by vehicles users through remanufacturing implementation.
A remanufactured part normally costs 50% to 75% that of a new one and customarily carries some warranty offer.
Components that are currently remanufactured within the global automotive industry include; air conditioning compressors, alternators, engines, fuel system components, rack and pinion steering, starter motors, steering system, transmission system, turbochargers and water pumps.
However, there is a need to regulate and to standardise the remanufactured parts and components distinguishing them from those of the salvaged components from the scrap yards which are reused, refurbished or repaired without undergoing proper testing and quality assurance procedures.
The remanufactured parts and components should be fully tested in compliance with specified standards fulfilling similar function, with warranty offer, liken to the original components.
Malaysia has the potential to build a strong remanufacturing industry with the existing manufacturing base coupled with the availability of an established and sound parts recycle industry.
Remanufacturing requires support from other activities such as; parts collectors, professional recyclers, disassemblers and cleaners to ensure consistency and sustainable supply of used parts and components as remanufacturing input. The demand will spearhead the development of more organised recycling activities within the local aftermarket ecosystem.