Published November 10, 2009

End of road for GM-DRB tie-up to distribute Chevys?

GM decided on split last week amid disagreements, say car industry execs

By S JAYASANKARAN
IN KUALA LUMPUR

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A TWO-YEAR partnership between General Motors (GM) and Malaysian conglomerate DRB-Hicom to distribute the US carmaker's Chevrolet brand in Malaysia could be terminated by next month following an apparent breakdown in relations between the two parties.

Syed Mokhtar: For its part DRB-Hicom, controlled by Syed Mokhtar, seems to have done well only in areas where its foreign partner both controls and manages the JV

According to car industry executives, the disagreements between the two are widely known. Indeed, in September a local daily reported that GM had terminated the partnership, but the report was refuted by DRB-Hicom in an announcement to the stock exchange.

But the car executives said that they had heard that GM had made up its mind last week.

Whether the recently announced National Auto Policy (NAP) has anything to do with influencing GM is not clear.

The NAP allows foreign carmakers to manufacture cars - either by themselves or through contract manufacturing - without any equity restrictions, which means GM could conceivably begin assembling its cars in Malaysia - or, say, pay Proton Holdings to do it - without any bumiputra partner.

Even so, that would apply only to GM's best-selling brands and not, say, the Captiva sports utility vehicle which sells too little to justify being assembled locally.

That would still require GM to team up with a suitable bumiputra partner who would be eligible to apply for the necessary Approved Permits, the import licences that are required to bring in completely built-up vehicles.

Analysts note, however, that the latter scenario would hold true if GM only intended to sell in Malaysia. 'If it wanted to make Malaysia its regional hub, that's a completely different story,' a car industry executive told BT.

For its part DRB-Hicom, which is controlled by tycoon Syed Mokhtar Al-Bukhary, seems to have done well only in those areas where its foreign partner both controls and manages the joint venture.

In its Suzuki business, which is doing well, DRB-Hicom has moved to a minority stake from a majority interest. In Mitsubishi, DRB-Hicom has a 48 per cent stake.

Even at Isuzu, the Malaysian conglomerate has had to accept a minority interest where it used to run the show previously. The new joint venture is said to be profitable.

DRB-Hicom's most successful joint venture is with Honda where it has a 34 per cent interest. It also assembles Mercedes Benz at its plant in Pahang in operations that are largely managed by the Germans, say car executives.

Even so, analysts do not think its split with GM will harm DRB-Hicom significantly. Slightly less than a thousand Chevys were sold in Malaysia last year.