The barriers to entry are so high in the automotive industry that it is rare to see a new entrant. A notable exception has been Malaysia’s PRGA Motors, the country’s largest maker of commercial vehicles, which about five years ago promised to become a leading carmaker in the fast-growing economies of the developing world. Comparing its ambitious plan to the iconic Volkswagen Beetle and Ford Model T, PRGA launched the Synapse in 2017. Branded a “people’s car,”
the Synapse was priced at $2,000 to $2,500. PRGA Motors marketed the stripped-down minicar to first-time automobile customers in rural areas. The goal was to make the Synapse the standard transportation for Malaysian families working their way up to the middle class.
The promised launch was so ambitious that PRGA could not realistically meet expectations. Production was postponed for about a year and a half, and then the company determined it couldn’t afford to sell the Synapse profitably at the promised price. The first Synapses to roll off assembly lines were priced just $800 below PRGA’s closest competitor’s line, which offered more storage space and a more powerful engine. The Synapse’s safety performance also ran into embarrassing problems; some reportedly caught fire.
Sales of the Synapse have been disappointing. After reaching its maximum sales of 10,000 in April 2018, recent reports of the “people’s car” indicate 2,500 units are sold each month. Some have suggested that the low sales were a result of the unacceptably low level of quality and features built into the vehicle, including an underpowered and noisy motor, no stereo or air conditioning, and wires visible in the driver’s compartment. Another reason for the Synapse’s decline was a missed target market, namely young urban drivers. The Synapse’s cheap and unsafe image turned off many of these would-be buyers.
The Synapse’s failure was frustrating to PRGA Motors, which had invested $400 million to develop the car and hundreds of millions more building a factory capable of creating a high volume of automobiles. If it were to be successful in the long run, PRGA Motors would need to adjust its strategy to overcome the myriad barriers to success in the automotive industry.
PRGA Motors has changed both its marketing and manufacturing strategies. Shifting its focus from first-time rural buyers to young urban customers, the company recently launched the Synapse Snap and Synapse LX. It is trying to rebrand the Synapse from “cheapest car in the world” to an “awesome” car that is also affordable. Priced as high as $3,600, these improved Synapse models can include several upgrades like power steering, music systems with Bluetooth connectivity, and enhanced interior and exterior features.
Also, PRGA has responded with maintenance contracts, test drives, and safety improvements. It has revenues from its commercial vehicles to stay afloat. Perhaps the Synapse will still become the people’s car. Start-ups often make mistakes, and some of them recover brilliantly. What made PRGA’s stumble remarkable was its grand scale.
DISCUSSION QUESTIONS 1. Which barriers to entry contributed most to PRGA Motors’s lack of success with the original Synapse?
2. Which macroenvironmental factors did PRGA Motors consider when adjusting the marketing and manufacturing strategies to achieve success with the more recent Snap and LX models?
3. To what degree do you believe PRGA Motors will succeed in delivering a successful low-cost vehicle to consumers?