A GLOBAL carmaker is close to completing a deal to acquire a majority stake in Naza Group’s plant in Gurun, Kedah, sources say.

The Gurun plant, which assembles Peugeot and Kia cars, has an annual capacity to produce 50,000 vehicles a year.

“The deal that will be signed next week will spell out the terms to make the Gurun plant as its base for the domestic and Asean market,” says a source from the authorities.

 Naza will retain the distributorship of the cars in Malaysia, with the possibility of expanding its dealership to neighbouring countries, sources say.

“Naza has build up an an extensive network of showrooms and dealerships in the country and is looking the expand the business with the right partner,” another source says.

“The partnership will allow the Naza group to price the cars competitively … much lower than now. At the moment, it is not able to price the cars well because the group is only a principal dealer.”

The deal, if it goes through, will be somewhat similar to the tie-up between Zhejiang Geely Holding Group Co Ltd and Proton Holdings Bhd.

DRB-Hicom Bhd had in June last year selected Geely over the manufacturer of Peugeot, Groupe PSA as the global partner for Proton following an extensive six months of evaluation.

Under that deal, Geely acquired a 49.9% stake in Proton from DRB-Hicom. However, it has majority control over the brand’s assembly and production operations.

Led by its new chief executive officer Dr Li Chunrong, Proton is working to accelerate introduction of new models, cut total cost by 30% and retake a third of the domestic market share.

It is also eyeing to grab a tenth of the booming Asean car market.

As for the Naza group, the entry of a global manufacturer will position the plant as an Asean hub.

“The Gurun plant will give the global carmaker a ready manufacturing hub with enough capacity to target the demand in the Asean region,” the source says.

At the moment, the plant is producing about 15,000 vehicles per year and has the capacity to ramp up production without incurring much additional cost.

Set up in 2004 and owned by Naza Automotive Manufacturing Sdn Bhd, the plant is located on a 140-acre site that comprises an assembly plant, an office building, a test track as well as lots for vendors and suppliers.

The company was reported to have invested about RM700mil over the years to build up the plant.

In late 2011, Naza rolled out its 150,000th vehicle produced at the plant, but production had since slowed and sales of the two Peugeot and Kia brands in the local market slumped.

Latest official sales figures released by the Malaysian Automotive Association (MAA) revealed that only 4,131 units of Kia vehicles were sold in 2017, down from 4,370 units registered in 2016.

Peugeot fared better, with a slight pick up to 1,924 units compared with 1,710 units a year earlier.

The low sales figures had forced Naza to lay off some of its workforce at the Gurun plant last year.

In an interview with StarBizWeek last year, Datuk Wira SM Faisal SM Nasimuddin and his younger brothers, who are jointly managing the Naza Group’s sprawling business empire, have expressed their desire for the brands’ principals, especially Kia and Peugeot, to take a larger role in the car business in Malaysia and eventually in Asean.

With each business now on a five-year roadmap in terms of the direction they are headed, Naza wants the principals it is in business with to have equity partnerships with the group.

They said that the longevity of the auto business is more secured when the principal buys into the business.

“We have our own strengths that can complement our principals. We can also get involved in the regional vision,” they said.

Apart from the auto business, which accounts for 60% of group revenue, Naza’s other large business interest is property development.

Automotive remains the mainstay of the group but the business, like the industry, has suffered with the downturn in car sales.

While the total industry volume in the domestic market had stagnated at below 600,000 units a year, the market for new car is growing across the region.

New vehicle sales in South-East Asia’s six largest markets increased by more than 4% to an estimated 3.38 million units in 2017, with Indonesia leading at 1.08 million units, followed by Thailand at 870,00 units and Malaysia at 576,635 units.

In the Philippines, new vehicle sales grew 17% last year to 474,000 units.

The prospects for strong car sales growth in the region is driven by rising incomes and the growing middle class in expanding economies.

In Malaysia, Honda saw a 19% jump in sales volume to 109,511 units last year, as the Japanese carmaker strenghtened its grip on the number two spot.

Perodua, made by a joint venture between Malaysian and Japanese partners, remained the number one seller with 204,887 units sold.

Proton barely defended its top three spot with 70,991 units sold, followed by Toyota with 69,492 units.

The MAA is projecting new car sales in 2018 to grow to 590,000.