It has been 15 years now since I last read my Economics Textbook, back then in pursuing a BSc Economics. The first thing that we, amateur economist, learnt was that 'Economics meant the social science that studies the production, distribution, and consumption of goods and services.' A famous theory is the basic supply and demand model. The theory of demand and supply is a simple principle to explain prices and quantities of goods sold and changes thereof in a market economy.
In truth, economics is boring, confusing and downright hard. But nothing is harder than operating in Malaysian NGV industry without fundamentals in economics.
NGV Economics Drivers in Malaysia
In Malaysia, I have observed that Malaysian NGV industry is driven by 3 economic drivers:
(a) Changes in Petrol/Diesel Retail Prices (Petrol Price factor);
(b) Changes in the health of Malaysian Economy (Cashflow factor); and
(c) Changes in Consumerism toward Reputed Installer (Confidence factor);
Changes in Petrol/Diesel Retail Prices (Petrol Price Factor)
This Petrol Price factor was well demonstrated on 4th June 2008, where Malaysian retail petrol price increased 40% from RM1.92 to RM2.70 per liter. The demand for NGV conversion shot up overnight, and brought about over-demand symptoms.
The existing NGV Installer (licensed, rogue & unlicensed) was crowded with demand, and flushed with booking monies. It was the D-Day victory for all NGV installers, except Hijau.
Surprising to others, Hijau completely stopped all conversion activities by Board of Director, under my advice. Back in February 2006, petrol price risen from RM1.62 to RM1.92 brought about over-demand. Behind this over-demand, there is a big catch (or economic fallacy).
I have observed in February 2006 (Hijau Awakening) that many ill-maintained private vehicle by their owners would rush for NGV conversion. Eventually, these customers became a Warranty & After-Sales Service nightmare to their respective installers. Many workshops experienced 'come-back' complaints and started to incur huge time loss, under-conversion and sometimes warranty on non-NGV parts. The cause is commonly poorly maintained engines, where most owners are thrifty on service schedule. NGV conversion was their quick-fix to contain their financial problems, ballooning by higher petrol price.
Hijau kept itself outside this vicious demand as petrol price factor is very elastic (or its propensity (speed) to change is extremely high). A decision that Hijau made has proven to be right at the moment of writting this posting.
Although so, the petrol price increased spurred on new entrants (new entrepeneurs) into the Malaysian NGV industry. Many are illegal and almost all commenced business when petrol prices were failling down steadily.
Suddenly, petrol prices are reduced gradually from RM2.70, RM2.55, RM2.40, RM2.30, RM2.15 and at this day, RM2.00 per liter. The reverse petrol price factor prove fatal for unprepared installers (and that accounts for 98% of the existing installers, except Hijau).
I have always maintained that Hijau should be prepared for low petrol price factor, as well as increase gas price. Petrol Price factor in NGV economics is too unstructured, volatile and often unpredictable situation (as it is politically driven).
Changes in the health of Malaysian Economy (Cashflow factor)
With the global financial turmoil 2008 taking landfall in early 2009, the Malaysian economy is expected to experience a slowdown. It is expected to be a prolong world recession, where New Zealand, Singapore, Japan, Iceland and other countries has announced economic recession.
This brings about a slow but non-volatile cashflow factor. Individual and companies are cash-tight, where cash collection is poor (sometimes bad-debt) and cash outflow is a must on paying petrol. Thus, NGV conversion led to a 60-70% petrol discount, by using mainly natural gas.
Often, I have been criticised as 'Doctor on the outside, idiot in the inside', it is a clear fact that cashflow factor will drive more companies to use NGV as their cost-cutting practice. Company vehicles can't stop or travel-less, which incidentally means lower sales or reduce new cash streams. But cashflow factor demands strong foundation (good company brandname, technological reliable & excellence after sales service), and well-planned marketing.
Changes in Consumerism toward Reputed Installer (Confidence factor)
'To win Confidence in advance of Conversion Success is the hardest Accomplishment'. DRX
As posted earlier in DRX 2006: Discovering NGV in Malaysia, a NGV conversion company must have a positive reputation in the Malaysian NGV market. Private vehicle owners are new to NGV conversion, and based their purchasing on company reputation. Some customers may be more price-sensitive, while others are safe-conscious. Confidence can drive customers to NGV installer, provided that the reputation is positive.
At Hijau, 'Hijau Always Safe, Hijau Always $ave' is the source of our commitment and confidence. But the effort to obtain such Confidence is long and hard, frequently punctuated by criticisms from competitors. And for my reading competitors, here is what I have to say in return (to those unconstructive critics):
'In Hijau 2nd Rules there is only one clause:
DO WHAT YOU WILL,
because people who are free, well-born, well-bred and easy in honest company have a natural spur and instinct which drives them to virtuous deeds and deflects them from vice; and this I called Honour.'
This is our reputation, confidence and honour. Remember that, competitors!
Be safe, Drive Safe. DRX
email: drxander@ngv.com.my
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