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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

MOTORCYCLES

Reviving a 1980s Dream

Can Malaysia Repeat Proton's Success on Two Wheels?


CAN MODENAS MATCH THE success of Proton, the Malaysian national car? That's the task tycoon Yahaya Ahmad gave his former Malay College classmate Rashid Din, 49, when he tapped the British-trained mechanical engineer to head the national motorcycle project. Though favored by Prime Minister Mahathir Mohamad, the government shelved the two-wheeler venture in the 1980s. Planners concluded that, given Malaysia's small market, the undertaking could survive only with huge exports. Now, Yahaya, who also controls heavily protected Proton, has revived the idea -- and local motorcycle assemblers and dealers are worried.

Modenas is owned by his Diversified Resources Berhad (DRB, with 70%), motorcycle maker Kawasaki (19%) and trading giant Nissho Iwai Corp. (11%), which distributes Kawasaki outside Japan. The multinationals have been Yahaya's partners in Kawasaki Sunrock, a local assembler. All that was uncontroversial -- until DRB recently bought control of state-owned Heavy Industries Corp. of Malaysia. Among Hicom's diverse tie-ups are motorcycle assembly and engine development ventures with Honda, Suzuki and Yamaha. "The Japanese are not happy," says an industry executive. "When Hicom was a government entity, it was a different story. Now it is in private hands."

Rashid has declined to comment on the apparent conflict of interest. He prefers to talk about Modenas as a major plank in Malaysia's industrialization: "If we can't manufacture a motorcycle from scratch, we can't call ourselves developed." He puts a premium on making engines. "First, the motorcycle, minus the engine, will be manufactured," he says, requiring some $120 million in investment. Then another $80 million will be spent to raise output and set up engine production. The two phases will take three to five years, says Rashid. The first 100,000 units of motorcycle is forecast to have at least 60% local content. The CEO hopes Modenas will take off much faster than Proton, which needed to set up a dealership network.

Starting September, Modenas will roll out from its Gurun plant in Kedah state 110-cc four-stroke and 115-cc two-stroke models. Sports models will be developed at a later stage. Once the first phase is completed, Rashid expects the 28-ha plant to employ 1,000 workers in two shifts. Two-stroke models make up approximately 70% of the domestic motorcycle market, and four-stroke bikes the rest. Despite the limited market, explains Rashid, Modenas's move into four-stroke cubs "is in line with the government's plan to check pollution."

Some rival assemblers and distributors fear a price war. To meet its target of 50%-to-60% market share, Modenas may have to sell below $1,500 for a cub model with a 105-to-110-cc engine. They now cost an average of $1,580. Its rivals won't say how they would counter such a tack, noting that most bikes are under price control. A Kuala Lumpur distributor believes "the expanding local market can accommodate another entrant. And there's ASEAN, itself a huge market." From 83,501 units in 1987, motorcycle sales in Malaysia hit 283,849 in 1994, 80% below 250 cc. Last year's tally was tipped to reach 320,000, which is expected to rise another 8% in 1996.

But one industry observer says: "Some assemblers may just find it more profitable to supply parts to Modenas." Even the new player may have some red ink for a time. "Like most other Ônational' projects, manufacturers were prepared to stomach early losses to build market share," says an analyst. Rashid retorts: "Our finance people say we'll make money from day one." But he admits: "We definitely won't have a positive cash flow in the first year."

In any case, Modenas has submitted a request for preferential treatment to the government. Proton has thrived on it, paying only 13% duty in imported parts while its rivals forked out 42%. Today, the car is moving into overseas markets like Britain and the Philippines, and a second national car project was launched in 1994. But applying the same strategy to motorcycles may not work. Bike buyers are less affluent than car customers and may balk at the prices protectionist duties would impose.

Moreover, the impact of tariffs on Modenas's rivals may not be that much, since about 95% of their body parts are locally made. Only the engines and some transmission and control units are from Japan. "We've complied with all requirements on local content," says one assembler. "We can produce even the imported parts, but the investments are huge." Other analysts wonder whether the relatively low-tech, labor-intensive motorcycle is worth all the expense. Rashid cites a non-economic benefit: "Imagine everyone on a motorcycle. Traffic jams will be reduced." But that aim won't be helped by raising bike prices to favor a local make.


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