Ford Enters Attractive CV Market With Transit
BMI View : Ford's decision to locally assemble its Transit light CV will be positive for the automaker given our bullish long-term sales forecast for Malaysia's CV market predicated on strong economic growth and the ETP programme. We expect auto sector investment to increase over the coming years and recent improvements in the country's business environment support our view.
Ford Motor recently announced its intention to jointly assemble its Transit light commercial vehicle (LCV) in Malaysia with Sime Darby Auto Connexion (SDAC). The van will be assembled in SDAC's Kedah plant starting from early 2014 and will be sold in the domestic market.
Ford is currently in the Malaysian passenger car market but is only a small player with a share of less than 2.0% of the overall auto market. The Transit is aimed at commercial businesses to help them improve their efficiency and support their growth. We believe the automaker's entry in this new segment will help it increase its domestic market share, not least due to our bullish long-term CV sales growth forecast predicated on strong economic growth as well as the Economic Transformation Programme (ETP), which is a government-led initiative to transform Malaysia into a developed nation by 2020 through investments in key economic sectors.
BMI forecasts Malaysian CV sales to grow at an annual average of 4.7% over the 2013-2017 period, to hit 95,000 units by 2017.
|Good News For Ford|
|Malaysia - Domestic CV Sales, Units (LHS); % Chg y-o-y (RHS)|
We observe a trend of rising local production investment in the Malaysian auto sector recently from both local and foreign players ( see 'TMS' Bus Production Will Benefit From Tourism Growth', October 11 and 'Tata's Foothold Essential To Broader Regional Strategy', September 16). Further providing support to this trend has been the recently concluded elections, which have fostered greater macro-economic stability as Prime Minister Najib Razak's party was brought back into power. We expect foreign direct investment (FDI) to pick up in the coming years as investors anticipate policy continuity from the current administration.
Therefore, BMI remains bullish on auto sector investment over the coming years as Malaysia remains an attractive destination for suppliers and automakers alike to set up shop. One recent development supporting our view is the upgrade in the country's position in the World Bank Doing Business 2014 Report. Malaysia has moved up two places from 8 th place previously to 6 th currently ( see 'Improving Business Environment To Boost Investment', November 11). Improvements in the country's business environment will prove instrumental in attracting greater FDI and will also be positive for economic growth, which will spur domestic demand for both cars and CVs.