WHY SOME MOTOR VEHICLE BRANDS FAIL IN MALAYSIA

Joe Q. Public has no idea if a brand that’s been launched and hyped up in the media actually has a network of retailers who have the necessary moolah to run their businesses, AS BUSINESSES! So let's look at two aspects which are key factors in the failure or decline of brands in Malaysia, based on my observation.

MONEY

Example: Company A is a distributor for Brand X. They go on a rampage, rapidly building up a nationwide network thinking they can sell as many cars as they can. Unless the brand is a strong, globally represented one, no entrepreneur with cold, hard cash is willing to be their dealer though, so they are left with no choice but to recruit dealer candidates who are multi-brand, used car dealers, food retailers, printers, etc. In short, people who haven’t had a track record in the motor industry. More often than not these aspiring motor industry people don’t have the cold hard cash to invest in the business.

Tell-tale signs?

- Operating from rented premises. This may or may not indicate anything conclusive. Some MNCs/Globals operate from rented premises as well but there are reasons for doing so e.g. their shareholders look at RONA. But it IS a red flag. To be successful in a high capital and relatively low margin (5-9% gross margin) business you need lots and lots of cold, hard cash.

- Inability to equip dealership. The aspiring dealer does things as cheaply as possible and isn’t prepared for the capital expenditure involved in say, purchasing tools and equipment for his/her service centre, preferring instead to opt for ‘sponsorship’ from a lubricant supplier. Look at it this way – if they can’t even buy car lifts, jacks, hand tools, special tools, oil drainers, etc. how is it they’re getting into this industry anyway? More often than not they bamboozle the principal/lube co. and buy lubes from other oil companies as they get higher margins. The ‘sponsor co’ understandably gives them lower margins as all that supposedly sponsored equipment has to be paid somehow, by someone! Some dealers are basically rich but uneducated, aggressively opposing the purchase of basic tools like torque wrenches. Customer cars get bolts broken or a wheel flies off as they’re driving? Who cares? Compliance is not an issue.

- Reluctance or inability to hire talent. How are they going to run a service centre handling the latest motor vehicles when the techs are basically only good at changing fluids and cannot perform diagnostics?

There have been cases of dealers keeping up to 14 or more undiagnosed cars on the premises, and the situation was only escalated to the distributor's customer service centre once customers went berserk. The dealership in question didn't even escalate the tech findings or lack thereof to the national help desk. Root cause? No capable diagnostic techs and poor management. The national sales company/distributor is then forced to incur heavy overheads hiring and ever increasing headcount of the very best diagnostic techs to basically prevent rioting at dealerships around the country!

Others don't know how to, or cannot afford to hire competent warranty personnel, leading to hundreds of thousands of claims which cannot be paid out. Not by the principal and not by the distributor. If ever there was an area where the industry is overly 'rigid' about it's warranty claims. There's no escape. Even if you're PERFECT you'll still lose 1-2% of the claimed amount per annum. It's just how it works. But in Malaysia there's at least one distributor whose head paid off a dealer (who sells unapproved engine oil) with over RM400k in bad claims out of the distributor's own pocket.

- No cash to purchase inventory, be it new vehicles or parts. This is self-explanatory.

MANAGEMENT

Where to start? The top. Some distributors have management characters who are basically … iniquitous!

Tell-tale signs?

- Compliance-averse. They want to operate without rules and regulations because it suits their goals, which are usually not good. In a compliance-free environment, a dishonest leader can do a lot!

- Other agendas i.e. setting up buddies as dealers, giving them amazing credit facilities without credit scoring checks, putting their relatives in said dealerships, making side deals with logistics suppliers and other vendors, giving buddy dealers additional gross margins, centralizing trade-in car sales for their own benefit, setting up ad agencies (that no one else in their right minds use) to feed their own pockets, etc.

- Extremely poor financial management. In one Malaysian automotive distributor for example, A/R is a joke, the business unit head orders parts out without quote, PO, DO. Stock losses of RM3M or more is written off as 'system migration', another division had RM0.75M is bad debt, not written off, yet remained uncollected for up to 3 years.

- Unprofessional and unqualified leadership. These guys are around because they have other skills e.g. being able to entertain people who need entertainment, able to fake invoices and avoid duties, etc. In an MNC/Global co. they would have been fired after 3-5 consecutive quarters of losses.

- Bad principal. Sometimes the unsuccessful brands have really incompetent, uncaring regional offices who cannot respond to technical issues, safety issues and dealer issues. There is a time for holding dealers accountable, but there are also cases where the principal and regional offices should be taken to task for lamentable performance. There's no effort to do checks on their local partners, to see if they're breaking any laws or aiding and abetting any criminal activity e.g. tax fraud, money-laundering.

SUMMARY

There is no one to hold these people accountable. Targets are announced, said targets published but no one revisits them. This repeats year after year. Have a reasonably healthy advertising budget and you can just about spin anything.

Who suffers and pays for all this in the end? The unfortunate customers, ultimately. Left with plummeting resale values which could be better because the distributor’s idea of ‘marketing’ is continuous, prolonged and PUBLIC discounting/rebating. Poor service because of the reasons detailed above and high, high levels of dissatisfaction even if CSI were very high initially. Careers of na?ve new joiners are adversely affected. Woe to them if they dare to oppose the corrupt, incompetent leadership.

So how do you recognize these brands? You shall know them by their fruits. Look at their sales figures over the years, read owner comments in user groups, forums and social media. Compare parts prices, service costs. Do your own research and draw your own conclusions before buying a motor vehicle or advising someone to do so, no matter how good the product seems to be or is hyped up as being.

Caveat emptor!

NOTE: This is a work in progress so I'll edit and update it from time to time. If I’m wrong about anything please do correct me. I’d love to be proven wrong and learn.