Proton Saga SV to arrest sales drop: Kenanga

PETALING JAYA (June 18, 2013): Proton Holdings Bhd's move to introduce the Proton Saga Super Value (SV), which is 13% cheaper than the Saga FLX Standard 1.3 – the previous entry-level Saga, is expected to arrest the month-on-month decline in the sales of Proton cars, said Kenanga Research.

Deeming the move as "positive", the research firm said however, the lower car price will put further pressure on the national car maker's already thin and declining profit margins.

Earnings before interest and taxes (ebit) margins in DRB-Hicom Bhd's automotive segment were just 1.9% in the financial year ended March 31, 2013 (FY13) compared with 3.5% in FY12.

Kenanga estimates that an average 10% reduction in Proton Saga's price will only reduce DRB-Hicom ebit by less than 2%.

"Looking ahead, this move by Proton could lead the entire industry into the next phase of price competitions, rebates and promotions."

Over the weekend, DRB-Hicom's wholly-owned unit Proton, unveiled its most affordable car, the Saga SV, which is part of the Saga FLX model range.

The move by Proton to offer cheaper cars is in line with the government's vision to reduce car prices by between 20% and 30% gradually over the next five years.

Powered by the same 1.3 litre Campro IAFM as Saga FLX and available in manual and CVT automatic transmissions, the Saga SV is priced from RM33,438 to RM36,888 in Peninsular Malaysia. The current Proton Saga cars are priced between RM38,800 and RM49,900.

"The entry level Saga SV is almost 13% or RM5,000 cheaper than the FLX Standard 1.3, the previous entry-level Saga. On the average, the new price is 10% lower compared with the current similar Saga FLX models," said Kenanga.

The Saga model accounts for 40% of Proton's vehicle sales.

Kenanga also said speculation is rife that Proton is expected to use the Honda Accord chassis in order to bring back the 'Perdana' replacement model.

It was reported that Proton's collaboration with Japanese automotive giant, Honda Motor Co has finalised. However, the details of the collaboration have yet to be ironed out with the first variant of the agreement being expected only sometime later this year.

Kenanga also noted that DRB-Hicom management has recently highlighted that the key initiatives to revive Proton and reduce its cost would be to further reduce its vendors or suppliers with a target to reducing the cost by 30% in the next five years.

"So far, we understand that Proton has reduced its vendors to 209 from 236 in order to reduce the many layers of vendors in the procurement chain.

"The company will also leverage on its collaboration with its partners to reduce cost via the sharing of platform, technology and putting in place stringent procurement processes."