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Malaysia Day Special – How To Build Value With Low Investments: Go Auto Manufacturing Sdn Bhd (GAM)

One word; leverage.

Everyone appreciates quality and the general consensus is the more you pay for something, the better the quality. It is only natural that we are wary of anything that professes quality but costing a fraction of what we perceive to be of fair value.  The thing about Malaysians when it comes to vehicles is this:-

  1. CBU is always better than CKD. We have this weird perception that everything, from tires to condoms must be extra durable if it’s made in a foreign land.
  2. Anything from Asia apart from Japanese is going to be cheap but either the parts fail prematurely, requires high maintenance or is just plain ugly.
  3. Second hand value of non-Japanese Asian made cars sinks faster than the Titanic.

Look no further than Hyundai and Kia to see how long it took for them to establish a foothold here.

However, perception can change given sufficient time and reason. And what separates the ‘hot-hot-chicken-shit’ amateurs from the professionals is consistency. You can be the world’s largest car manufacturer or you be a chef selling economy rice at the back lanes, consistency is king.

consistency

When it comes to the car making business, maintaining consistency a very expensive conundrum. You have limited resources but you need to be able to produce sufficient numbers to remain profitable enough to pay your overheads.

That means finding a plot of land to rent/buy and set up the factory
And investing in heavy machinery, parts, materials, manpower.
And deal with suppliers, vendors who may not always deliver on time.
Then you’ve got auditors who poke their noses into your processes for ISO certifications.
And accountants who keep reminding you of budget constraints despite your grand plans.
All this, while keeping an eye on consistent quality.

Believe me, balancing plates on sticks, while standing at the back of a pickup 4×4, traversing Borneo Safari can be easier than this.

But the folks at Go Auto Manufacturing came up with an ingenious way of having a factory that doesn’t require ludicrous amounts of money while at the same time ensuring quality remains consistent.

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Go Auto Manufacturing Sdn Bhd, the local franchise holder of GWM is relatively unknown in the Malaysia’s automotive sector. Having set up its factory four years ago to assemble GWM pick up Wingle and Haval H5, it had the capacity of producing 60 units per month and employed around 40 people. Today, they are able to assemble 300 units per month and have 200 people working under their roof and was recently awarded Malaysia’s first EEV manufacturing license from the Malaysian Ministry of International Trade and Industry (MITI) which entitles them to customized incentives and tax breaks from the government. They may not be as large as the NAZA plant sitting across the road from them but they recently open a new site for a second factory which allows increase in capacity and do more body and paint.

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In the process of assembling a vehicle, the car body goes through various sections and parts get fitting onto them until it is completed and goes through various tests to determine its road-worthiness. If the assembly is done incorrectly, parts may be required to be stripped and the process starts again. If the sensitivity and frequency of QC checks are lax, defective (or “lemon” cars) may be released for delivery and woe to the buyer who purchases it.
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Go Auto has found a means to avoid this and establish quality controls seldom seen in factories by adopting a Tier vendor system.
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For those unfamiliar, the Malaysia supplier development program was set up by the government as an initiative to develop local parts manufacturing industry. At its introduction, the government shared how the Tier system works where Tier 1 (supply only) to Tier 5 (capable of doing own R&D to improve parts) were explained in detail. Out of nowhere came Tier Zero and this puzzled quite a number of industry observers because it was not briefed to the media.
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Tier 0 refers to factory-to-factory production and it involves inviting various third party vendors to set up ‘mini-factories’ within their factory. In the Go Auto factory, you will find the following company names in various sections of the assembly line:-
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Permintex (trim line)
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Sapura (chassis)
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Meka (last assembly)
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Milan utama (testing & QC)
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Gnosb (liquids ie engine oil)
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Forhas (logistic)
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Each section would have its own workers and every morning, all section head would involved in “Morning Market” section where topics like assembly quota, defect ratio and anything related to the production process is discussed, fine-tuned and improved. Go Auto would have overall supervisory power and final decision to any dispute would be held in their hands.
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When you think about it, what Go Auto has done is pretty remarkable.
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Step 1 – Find a suitably large plot of land and build your factory
Step 2 – Invite vendors (who invests their own manpower and infrastructure)
Step 3 – get other people to check each other’s finished product and hold them responsible for each error along the assembly line.
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I asked if the production cost, due to the involvement of third party vendors who needs profits to maintain the operations, be high but was assured that it’s not that different compared to owning the entire operations. How else would they be offering GWM vehicles at such competitive pricing while maintaining low complaints of product defects from the market.
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It is proven to be sustainable since for the past 4 years, the plant has developed from assembling the Wingle pick-up and Haval h5 to producing 300 units per month, has more aut0matons while providing over 200 jobs to assemble the M4 as well as contract manufacturing for other China brand vehicles such as DongFeng and making the cabin frame for Jinbei, BAIC and Hafei. It is currently operating at 85% capacity with a 14-16 units per day. Each production line is capable of a maximum 10,000 annual production.
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Aside from a larger factory, Go Auto has expanded it’s spare parts center to include Glenmarie for East coast and South requirements while the factory services the northern corridor.
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Recognizing the need to start the brand with a positive ownership experience, Go Auto has a response service team that operates 24/7 with a promise that parts will be delivered within 24 hours to site and East Malaysia within 3 days. All Go Auto vehicles carry a 3 years/100,000km.
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From all this, you can see that Go Auto is geared for a huge expansion exercise catering both domestic as well as international exports. They will be manufacturing ZXauto pick-ups for Thailand market and GAC SUVs for Cambodia and there are plans for BAIC EEV vehicle productions in the coming years.
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Leverage is to rely on the strength of many to achieve more alone. To do this, you need to provide a win-win situation for all. The timing of Go Auto couldn’t be better with China looking into expanding its international vehicle sales and with so many brands contracting with Go Auto, we can expect the factory to be growing at an exponential rate in times to come. Tier Zero vendors would have more than enough to keep going and from the increase in production numbers, Go Auto would be able to take advantage of economies of scale to do many things – perhaps even R&D its own vehicles.
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Amazing isn’t it? To build something with so little. I’m looking forward to greatness from this company that’s doing so much while remaining humble. Great company, fantastic business strategy, excellent work culture – This is the true spirit of Malaysia innovation.
Source: http://kensomuse.com/

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