In most countries, the car business has evolved in similar ways with a small company introducing the brand to the market by becoming the local distributor. When the volumes are small, the manufacturer does not get involved much other than giving various forms of support to help the business grow. The importer/distributor then finds other companies to sell the cars, and these become dealers for the brand.
In time, when the volume becomes sufficiently large, the manufacturer then comes into the market to become directly involved in sales and marketing and, if local regulations permit, to also be the importer and distributor.
In Malaysia, however, the evolution of the business has been somewhat different from most countries. Prior to 1967 when local assembly began, motor vehicles were imported by various companies and sold by them too. These were companies like Cycle & Carriage, Wearne Brothers, the Inchcape Group (Borneo Motors/Champion Motors), Boon Siew/Kah Motors, Federal Auto and of course, Tan Chong Motors.
As the car business was an expensive one, getting into it was not easy and the importers/distributors found that it was more efficient to also handle the retail sales themselves. So besides being importers and distributors, they also became directly involved in selling them. Branches were established around the country to provide sales and aftersales services.
With demand for cars rapidly growing from the 1960s, sales volumes naturally rose very quickly and the companies prospered and became bigger. They even ventured into local assembly, responding to the government’s call, and invested some of their growing profits into the developing auto industry.
As it was not possible to cover the entire country comprehensively with their own network of branches, dealers were also appointed in some areas to be closer to customers. Some of these dealers who worked hard would also grow and have a few branches of their own. Some even became big dealer groups, taking a substantial number of vehicles each year and enjoying additional incentives.
By the late 1990s, the Malaysian market had grown to a size that was of significance and the manufacturers began to give more attention. A more liberal investment policy allowed Volvo to establish its own subsidiary to handle marketing and sales. Interestingly, Volvo had also been the first carmaker to build an assembly plant in Malaysia in 1967.
Volvo’s move was followed by BMW, Mercedes-Benz, Honda and Volkswagen. When these carmakers set up their own local companies (known as National Sales Companies), they adopted the more international way of car business – selling through dealers rather than distributor-owned branches. In other words, they did not get into the retail business themselves.
One of the benefits of such an approach is that there is a degree of competition among dealers – everyone wants to sell more cars and to do so, they must provide better services since they are selling identical products. It’s how the carmakers like it and it’s an approach that is used in most countries.
From next year, UMW Toyota Motor (UMWT) will also adopt the same approach. The company has announced plans for the majority of outlets currently owned and operated by UMWT as its own branches to be transferred to existing authorised Toyota dealers (or perhaps other interested parties). The move is said to be done with the aim of enhancing operational excellence.
While with the other brands, there was a major change in the business as the former importer/distributor became a dealer, the situation with UMWT is different because Toyota is already a major shareholder in UMWT. It has representatives on the board and a significant involvement in assembly activities. So this move is not likely to see UMW, which became Toyota’s partner in 1982, being changed to a dealer as well.
This time, it is different from the early 1980s when the Toyota franchise changed hands. At that time, Toyota had no share in Borneo Motors, which handled the brand. In fact, Toyota didn’t even deal directly with Borneo Motors and had its trading company (Toyota Tsusho Kaisha) manage the business with Malaysia.
Instead of having to also manage sales, UMWT will concentrate on upstream activities such as product development and marketing which need more attention and focus in today’s highly competitive environment. UMWT would also be able to provide more support to dealers to help them deliver better services to customers.
It’s possible that Toyota proposed such a move because the market has reached a level where distribution and sales need to be separated. It’s the way the car business is done in bigger markets and the Malaysian market – though not as large as in the USA or Japan – is a lot bigger than it was in the 1980s.
This is obviously a major change for UMWT, perhaps the biggest in the company’s history which goes back to the early 1980s. Clearly, with the transfer of facilities, the employees would also have to make a change. However, Japanese companies are known to be very sensitive to the welfare of members of their ‘family’. In Australia, where Toyota ended operations at its factory recently, much was publicised about how well the company looked after its employees to help them find new jobs. UMWT would certainly be ensuring that whatever benefits their employees have enjoyed will continue when they change employers.
However, customers and owners need not worry about this new development as it should be ‘business as usual’ at their regular authorised Toyota outlet. You can see that when Honda, BMW and Mercedes-Benz changed the way their business was done, things only got better for customers and the same thing will surely happen with Toyota.
So, after half a century, the Malaysian market appears to be finally breaking away from its different way of doing the car business and moving towards the global way.