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Rocky road for Malaysian
car
By Ioannis Gatsiounis
KUALA LUMPUR - Many first-time
visitors to Malaysia are surprised to find how many cars
sport a Malaysian emblem - let alone
that Malaysia builds cars at all. National car maker Proton,
in fact, accounts for almost half of Malaysia's car
market, while Perodua, which specializes in small and fuel-efficient models,
accounts for about 30 percent of the local market.
Since Proton's inception in 1985, it has been a point of pride for
this resource-rich nation of 23 million, serving up an
image of autonomy, innovation, patriotism and
industrialization.
But a recent spike in market
share in the face of increased foreign competition and a
gradual repeal of protectionism has rekindled a
long-running debate as to whether it was wise to embark
on a national car project in the first place.
Proton was one of former prime minister Mahathir
Mohamad's numerous pet megaprojects, which sought
through industrial bravado to boost Malaysian confidence
and impress the international community but have left
the nation sorely in debt and been linked to numerous
instances of corruption.
Now almost four months
since the recalcitrant strongarm stepped down after 22
years in power, the logic of his extravagant spending is
being called into question; and in the process so too is
Proton's viability.
"Many see this as a
make-or-break year for Proton," said Nicole Tan, an
analyst with Mayban Securities. "It's vital they make a
good impression."
The company's market share
tumbled from 60 percent in 2002 to 49 percent last year,
while company sales fell by 28 percent.
Proton
is banking on the launch this year of three new models,
priced between RM30,000 and RM50,000 (about
US$7,900-$13,150), to slow the hemorrhaging. The first
of these, the sporty Gen-2, is being promoted through a
racy television spot in which dapper models ogle the car
as it purrs across desolate landscapes and a
short-skirted woman is captured in slow motion splashing
a glass of water in her lover's face, presumably because
he is more interested in the car than her. The tagline:
"Astonishingly Stylish".
A bit brazen and
presumptuous, say some, in this majority-Muslim nation.
But clearly Proton feels the heat.
A slick image
makeover, though, won't sustain Proton, said Chips Yap,
editor of a popular motoring website in Malaysia. Nor
will customer loyalty stemming from national pride.
"They must now demonstrate that they are putting out a
quality product."
For years Mahathir pampered
Proton by way of high import tariffs, some as high as
300 percent, and ambitious propaganda campaigns
channeled through the state-controlled media. What in
reality Malaysians were getting was second-hand
technology fitted to a second-rate car. The bulk of the
blame, say analysts, lies with Mahathir. Impatient to
make Malaysia a car giant and boost national pride,
Mahathir had linked up with Mitsubishi Motor Corp. But
Mitsubishi never made Proton a priority, and to protect
its own vested interests was slow to transfer technology
and charged high production fees.
Proton is
aggressively trying to put that era behind it, an era
dogged by complaints of inconsistent quality, poor
customer service and limited consumer choices due to the
tariff scheme. According to chief executive Mahaleel
Ariff, Proton has invested some RM4 billion (more than
$1 billion) in technology in research and development
over the past five years and will spend RM5 billion more
over the next five. Proton bought out the British car
maker Lotus in 1997 and recently opened up a highly
automated "mini Detroit" plant north of Kuala Lumpur,
where cars will be assembled with almost entirely local
content, including engines (the Gen-2 is the first
Proton to feature a Proton-made engine, the Campro). All
of these factors, executives say, will help the company
price cars more competitively.
That is vital if
Proton is to survive, for the company will have to tap
into foreign markets and create an economy-of-scale it
currently lacks. Some economists say a large-scale auto
company with an annual output of fewer than 1 million
units cannot survive. Proton sold about 240,000 cars
last year and hopes to double production by 2005 and hit
a million by 2010.
But the foreign market is
crowded and cutthroat. And years of protectionism
haven't prepared Proton to compete. "Proton is
complaining endlessly about competition," Malaysian
Trade Minister Rafidah Aziz told reporters recently.
"But this is a basic problem they have to solve."
Not just yet, hopes Proton. In December Ariff
sent a letter to Prime Minister Abdullah Badawi seeking
20 more years of tariff protection, as well as a
research-and-development grant skimmed from taxpayer
money. Meanwhile, Proton expects to post a profit of
close to RM700 million for the current fiscal year.
Abdullah said he would not grant Proton more protection
- under an ASEAN (Association of Southeast Asian
Nations) Free Trade Agreement (AFTA) import tariffs are
to retract 5 percent annually and be repealed in 2008 -
because it is ready "to stand on its own". But what
Abdullah left unsaid is that the Malaysian government
has imposed high excise duties on foreign cars to offset
the repeal.
"It doesn't suggest confidence,"
said an investor with TA Securities, "so what you're
seeing is many investors who are opting to stay on the
sidelines for now."
They'll be waiting to see
how the new line performs and whether Proton can tap
foreign markets.
For now Proton is setting its
sights on China and Indonesia and several other Asian
countries. But its most aggressive push appears to be in
the Middle East.
"They're leveraging the fact
that Proton comes from a Muslim country," said Yap.
"They're hoping that will help carry them in the Middle
East." Proton executives are quick to point out that its
sales in that region grew 43 percent last year. On the
whole, however, Proton's export sales declined more than
8 percent; and the total number of exports sold - in
Europe, the Middle East, Africa, Asia, Australia and
Latin America - was a meager 7,929 cars.
Proton
recently signed a deal to supply its Campro engine to
Iran's two leading car manufacturers. Cars are in
growing demand in Iran, with sales around 700,000 units
last year.
But if response to Proton in other
Middle East countries is any indication, the road in
Iran will be rocky. In Kuwait, Protons serve mostly as
delivery vehicles and private drivers have been hard to
reach because they favor better-known brands with better
resale value. It's the same in Qatar and the United Arab
Emirates, where Proton sells about 100 cars annually. In
some ways, Proton is still like a kid longing to be
taken seriously. The question is, will it be?
"Proton will need to link up with a foreign
partner if it's to last," said one market observer.
Reportedly, Proton is actively seeking one.
Mitsubishi still has a 16 percent stake in the majority
government-owned company, though it's rumored to be
withdrawing its share soon.
Meanwhile, Malaysia's second car company Perodua has a foreign partner
in Daihatsu, responsible for the manufacturing side of
things - though it too has seen its market share shrink
in recent years.
Economist Terence Gomez, while
critical of Proton's past and Mahathir's coddling of the
company, suggests it's important not to write Proton off
just yet. "Who knows, [the new line] may finally
convince Malaysians and others that we have a viable car
company."
That's something Abdullah's
predecessor wasn't quite able to do.
(Copyright
2004 Asia Times Online Co, Ltd. All rights reserved.
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