Malaysia's carmaker Proton driving in search of a future
The new Iriz by Malaysia's national automaker Proton is showed to
the press before Thailand International Motor Expo at Muang Thong Thani
in 2014. (Proton photo)
KUALA LUMPUR - Malaysia's struggling national
automaker Proton Holding Bhd, once the country's sales leader, recently
saw its fortunes slip further by seeing its market share usurped by
Japan's Honda Motor Co.
"That is very shocking for everybody," veteran auto reporter Chips
Yap told Kyodo News of the fact that Honda beat Proton in the latter's
much-protected home turf.
The company once dominated the industry with 74% of the local market in 1993 but now has only 14%.
After being the top carmaker for years, it slipped to the number two
spot in 2006, beaten by rival local carmaker Perusahaan Otomobil Kedua
Sdn Bhd, or Perodua, which counts Japan's Daihatsu Motor as a major
shareholder.
But this year, national pride was dented when Honda beat Proton to
the number two spot, becoming the number one non-national brand. For the
month of April, Honda sold 24,741 units while Proton sold 23,702 units.
Perodua, which specialises in compact cars, was far ahead with 62,078
units, according to figures from the Malaysian Automotive Association,
an industry watchdog.
The ails affecting Proton were laid bare by Prime Minister Najib
Abdul Razak when he unveiled on June 14 Proton's latest model that he
hoped will boost Proton's sagging fortunes.
"Proton flourished, yes, but only due to a very high level of
government help. Our car industry grew under the umbrella of
protectionism, with quotas on engine sizes and Malaysians paying high
import duties on foreign cars," he said.
Since the company was established in 1983 by then prime minister
Mahathir Mohamad, Najib said the government has spent nearly 14 billion
ringgit (120 billion baht) in the form of grants, various forms of
assistance and tax forgone.
The latest handout was a 1.5 billion ringgit loan extended in April
to enable Proton to pay its vendors. Early this month, 1.25 billion
ringgit of that amount was used to buy convertible shares from Proton's
owner DRB-Hicom Bhd.
If the government chooses to convert the debt into shares, it will again end up holding nearly 80% of Proton.
Besides lacking research and development capabilities and having a
negligible export market, many of the company's problems stem from
political interference.
Proton, Southeast Asia's only full-fledged car manufacturer, was
Mahathir's brainchild. He saw it as a catalyst to promote
industrialisation in an economy that relied heavily on commodities.
According to Yap, he was heavily involved in its operations, ranging
from company strategy, management, right down to designs and sometimes
this involvement delayed the decision-making process.
And at times Mahathir's lofty ambitions for Proton did not make
business sense, such as building a second plant in Tanjung Malim in
northern Perak state that cost 1.8 billion ringgit and is five times
bigger than its first plant in Shah Alam in the outskirts of Kuala
Lumpur.
"At times there was a sense of hubris, that Proton could do anything
because the government would always back it. Two factories were built,
capable of producing 400,000 units a year. But last year Proton sold
only 102,000 cars," Najib said.
Throughout Mahathir's 22-year rule, Proton was untouchable despite
dwindling sales and bleeding money that led to several government
interventions.
When he left office in 2003, he was made an adviser to the carmaker
and subsequently its chairman, a position he held until becoming
entangled in a protracted row with Najib, whom he accused of being
corrupt.
The feud affected Proton as the government was reportedly holding out
on its request for more grants to help it pay off its debt.
Mahathir ultimately quit as Proton chairman on March 31. A week
later, the government announced a 1.5 billion ringgit loan package that
came with conditions.
Among them, Proton is to relocate its operations from Shah Alam to
Tanjung Malim, draw up a turnaround plan and seek a foreign strategic
partner to help in research and development in order to make it
competitive to help it expand locally and abroad.
The government also announced the setting up of a task force to ensure the restructuring is successful.
Najib said the government had to step in to ensure the welfare of the
12,000 employees of Proton and 50,000 workers of its 350 vendors.
"Now, I am pleased to say, there have been significant changes at the
top levels of Proton. Tun Mahathir's era of political interference has
come to an end," he said.
Writing in his widely read blog five days after he quit, Mahathir
attempted to deflect criticism away from Proton, saying the company had
given more than it took from the government.
He said that since 1985, it has contributed 24.9 billion ringgit to
the treasury in the form of various taxes like excise duty, sales tax
and corporate tax.
He complained that the government has been too accommodating with foreign carmakers.
"Incidentally all the countries exporting cars to Malaysia implement
tariff and non-tariff barriers resulting in excluding Proton's
importation into their countries. This contrasts with our policy of
allowing foreign cars to enter Malaysia with minimal or no
restrictions," he said.
"It should be noted that Proton has to compete in its own domestic
market against the likes of Toyota (10 million cars per annum), South
Korean carmakers (5 million cars), German carmakers (6 million cars) and
others," Mahathir added.
For the moment, Proton may have gotten a lifeline to stay afloat to
enable it to launch new models. Besides the Perdana sedan model that was
launched by Najib last week, which is a collaboration with Honda,
Proton is expected to come up with three more models including one in
collaboration with Suzuki Motor.
Hong Leong Investment Bank in a June 7 research note on DRB-Hicom
pointed to a not-so-rosy outlook for the auto arm of the conglomerate.
Proton is acting as a financial drag on DRB-Hicom, which reported a
net loss of 991.9 million ringgit for the year ended March 31 against a
profit of 300.2 million ringgit a year ago.
The bank highlighted the risks due to "prolonged bank tightening
measures on lending rules, slowdown of the Malaysia economy affecting
car sales and global automotive supply chain disruption."
"The new launches should cushion the cash-flow requirements and
survivability in the short to medium terms. However, Proton needs a
strong partner to lead it into the international level playing field
with improved products and technologies," the bank said.
Proton rolled out its first car in 1985 with a tie-up with Mitsubishi
Motors Corp. The joint venture floundered in 2004, due to Mitsubhishi
Motors' financial problems in Japan and sluggish sales in Malaysia.
Proton's then owner, sovereign investment fund Khazanah Holdings,
approached German's Volkwagen AG as a potential partner. But those talks
broke down due to opposition to Volkswagen's plan to acquire a
controlling stake in Proton.
Local media reports that Proton is currently in talks with the French
PSA Group, which owns the Peugeot and Citroen brands as well as
Renault.
Another auto journalist Yamin Vong is skeptical a deal could be struck, citing the Volkswagen experience.
"The managers at Proton are generally not in favor of the PSA Group's
bid," he wrote in an article published by the official news agency
Bernama early this month, "This is to be expected whenever a takeover
bid looms. Also, the perception that the Proton culture is one that
rejects changes is very credible."
"The companies that will really want Proton as a partner for Malaysia
and the Asean markets are brands that do not have an Asean presence and
desire to have a significant share in the regional bloc," Vong said,
referring to the 10-member Association of Southeast Asian Nations
