Ford Malaysia Sdn Bhd and its subsidiary, Associated Motor Industries Malaysia Sdn Bhd (AMI), today announced plans to restructure their business model and operations in Malaysia which will see, among other things, the closure of the AMI assembly plant in Shah Alam, Selangor. Ford Motor Company will also withdraw from direct involvement in distribution and marketing activities in Malaysia, a role which it took on 10 years ago when it acquired equity in AMIM Holdings Sdn Bhd, then the distributor and importer of Ford vehicles.
“Ford and Sime Darby have conducted various studies into the joint-venture’s business viability for the past few years and this year, an extensive review of the operations was done to determine the way forward,” said Tim Tucker, Managing Director of Ford Malaysia. “The studies were all done with the aim of finding an appropriate business model which can optimise the manufacturing and distribution investments of both partners in Malaysia’s highly competitive automotive environment.”
He said that for both partners, there was a need to ‘rightsize’ operations and to address the issue of over-capacity. Ford has two plants in Malaysia: AMI which it jointly owns with Sime Darby and Swedish Motor Assemblies (SMA) which is owned by Volvo Car Corporation, a subsidiary of Ford Motor Company. As part of its efforts to recover from a massive financial downturn, Ford wants to reduce its production capacity globally so overseas plants have also been reviewed and the need for two plants in a market as small as Malaysia is questionable. On Sime Darby’s part, it too had part ownership of AMI and had also, in recent years, gained the Inokom plant in Kulim, Kedah, as part of its acquisition of the Hyundai business. Therefore, with both partners seeking to downsize assembly operations, it became apparent that one plant would have to go and AMI proved a ‘logical’ choice if the joint-venture was to also come to an end.
Mr Tucker, however, emphasised that this development does not mean that Ford is pulling out of the Malaysian market altogether. It’s clear that given the tiny market share Ford has, the allocation of investment and human resources does not make sense, especially to the ‘big-number obsessed’ Americans. “Ford is not going to be directly involved in management, distribution and marketing as before but the business of selling Fords in Malaysia will go on via Sime Darby which will have exclusive import and distribution rights,” he said.
“To put it simply, as far as our customers and Ford owners are concerned, it’s ‘business as usual’ and there will still be a Ford dealer network to provide sales and after-sales,” assured Mr. Tucker.
He also revealed that local assembly of Ford vehicles will continue as Ford still considers Malaysia an important market even if it is not a big one. He said that the assembly of Ford and Mazda models (the Ford Ranger/Everest, the Ford Econovan and the Mazda BT-50) will be moved to SMA while assembly of BMWs, which AMI does under contract assembly, will be transferred to the Inokom plant. AMI has also been assembling the Land Rover Defender for the Malaysian armed forces periodically and these will probably be done at SMA. Although the AMI plant will be closing down, actual cessation of operations will not occur will the middle of 2008.
As for the AMI employees, Mr Tucker said that various options have been offered to them and the government agencies concerned have indicated that the options, which include VSS (Voluntary Separation Scheme), are not just satisfactory but generous. The options include being transferred to SMA or Inokom which will certainly need to increase their workforce as they take on new assembly business.
“We informed all our employees this morning of this development and I am very happy to note that the news was well received. We had prior discussions with the union and gave assurances that the entire matter would be managed properly and with great sensitivity,” said Mr Tucker, adding that it?s important that the cooperation of the workers is obtained since the plant will remain operational for another 6 months.
On the Sime Darby side, the future plans have not been revealed but it is believed that an experienced senior executive has been recalled to look after the Ford business in the multi-franchise Sime Darby Automobile Malaysia (SDAM) which is a unit of the Sime Darby Motor Division. This development will allow the Ford network, dominated by SDAM branches, to be ‘rightsized’ to suit the current sales volume. Presumably, the independent Ford dealers will also be retained as a number of them have many years of selling its products and are well established in their communities.
Of the future, Mr. Tucker said that new Ford products will continue to be introduced as and when they are available and there will actually be increased focus on product development for the ASEAN region, He revealed that the Ford Asia-Pacific division will move from Dearborn in Michigan, USA, to Bangkok, Thailand, in 2008 and this is significant because product development will also be done in Thailand in future, closer to the markets.
“Up till now, Ford Asia-Pacific has been on the other side of the world and product development has been far away from the Asian markets. Now, that division will be in Bangkok and what it means is that Ford engineers will be in the region and can come up with products faster,” he explained.
The issue of time-to-market has been a thorny one for Ford Malaysia, as evident by the long delay in getting a Ranger Automatic variant. When the Ranger was launched here in the late 1990s, it captured up to 50% of the pick-up market but even though there was demand for an automatic, Ford was slow to respond. As a result, Mitsubishi had an advantage when it introduced the Storm which had an automatic transmission and slowly chipped away at the Ranger?s dominance. Only much later did a Ranger Automatic appear, by which time Malaysian buyers had more choices and the Ranger has not been able to regain its dominant position in the segment.
Mr. Tucker acknowledged that the products may not have been right too and other than the Ranger, the other models have not made an impact to raise sales and market share. This situation will change in a couple of years as there will be a new small model assembled in the AAT plant (jointly owned by Ford and Mazda) in Thailand. The new model is said to have the right cost structure for Asian markets and should therefore be competitively priced.
Ford’s new Asia-Pacific strategy is a repeat of what was done in the 1980s after it partnered Mazda. In the late 1970s, Ford saw the ‘Japanese wave’ becoming too strong and decided to team up with Mazda to produce more cost-competitive models. The idea was that Ford would provide engineering expertise while Mazda would provide manufacturing efficiency, a Japanese speciality. This saw the introduction of models like the Ford Laser/Mazda 323 and Ford Telstar/Mazda 626, and later on true joint development of models like the Escape and Ranger.
The strategy worked well for Ford in particular, reducing the development costs, but joint development of sedans ended 10 years ago as Ford decided to become more active in Asian markets. “We realise that we have to be directly involved to control our own destiny,” the late W. Wayne Booker, a Ford board member told this writer in 1997, when he was asked about Ford’s growing presence in Malaysia. The mushrooming of business in China had also given Ford more reason to devote more resources to Asia.
Today’s announcement would be the second time that Ford has ceased direct and active involvement in the market; between 1973 and 1984, there was an earlier Ford Motor Company of Malaysia which went from a wholly-owned subsidiary of Ford Motor Company (1973 – 1981) to a joint-venture with Pernas-Sime Darby Holdings (PSD), which took a 49% stake. In 1984, as a response to the New Economic Policy that required equity restructuring in local companies, Ford sold off its share to PSD. Between 1984 and 1997, distribution and marketing of Ford vehicles was handled by AMIM Holdings, a division of Tractors Malaysia which was in the Sime Darby Group. Ford took 30% equity in 1997 and sent some representatives to join in the management team. In June 2000, Ford paid RM22.5 million to raise its stake to 49%, gaining management control of the joint-venture company (with Sime Darby) which was renamed Ford Malaysia.
The AMI plant was originally set up by Wearne Brothers in the late 1960s, one of the original group of plants set up by various companies in response to the Malaysian government’s promotion of local assembly which carried it with it preferential import duties that were lower than for vehicles imported fully built-up. Wearne Brothers, a large British group which handled various brands in Malaysia, signed a 10-year agreement with Ford to assemble its vehicles at the AMI plant (which also did other makes like Renault, Chrysler and Leyland). When the agreement expired, Ford Motor Company of Malaysia bought over the plant.
As one of the small number of plants in Malaysia in the 1980s, AMI took on contract assembly of various makes including Mercedes-Benz. Some RM14 million of periodic investments were made to upgrade its capacity and equipment, the most significant being a RM6.3 million paintshop which had the most advanced electrocoating anti-corrosion system (the cathodic process) in Malaysia when it was commissioned in 1983. AMIM Holdings took over the plant when Ford sold off its stake to PSD and when Tractors Malaysia acquired the BMW franchise in 1988, BMW assembly also began in the Shah Alam plant. For a short while in the late 1990s, even the Proton Iswara Aeroback was assembled at AMI as demand was very high for the model and Proton had to sub-contract assembly to get more units
The future of the plant remains unknown at this time. There is speculation that it will simply be closed down and all assets sold off, including the land. It could even be sold to another car company needing its own assembly plant and one company that comes to mind is Volkswagen, which still wants to assemble in Malaysia but may not do it at Proton’s plant since discussions of the partnership ceased.