Proton: National Pride vs National Liability? - Ammar Atan

1. Every Malaysian knows very well with Malaysia’s national car producer, Proton. Proton or (Perusahaan Otomobil Nasional Berhad) was established in 1985 and is well known as a brain-child of Tun Dr. Mahathir Mohamad during his premiership. The popular reason behind the inception of Proton was to hasten the Malaysian industrilisation programme and to create ample opportunities for Malaysian engineers, technicians, designers and others. In fact, during Mahathir's period, the Look East Policy has inspired him to build the national car company as Japan did successfully.

Country	Year Started
Australia	1944
Japan	1965
South Korea	1974
Indonesia	1976
India	1982
Malaysia	1985

Table 1: The time line of various countries’ national car project. Malaysia is not the only one in Asean.

2. Proton as the pillar of Malaysia’s automotive industry is always protected by the government through financial support and also by certain discriminative measures for foreign cars to enter the Malaysian market through excise duty etc. So far, the government has poured at least RM 15 billion of taxpayers’ money to develop Proton’s R&D by the request of DRB Hicom.

Table 2: Government is making billion of Ringgit through the discriminative measures.

3. Following such initiatives, Proton has evolved and formidable in the automobile industry. However, Proton has also been dubbed with lack of quality, inferior designs and poor handling, and these have caused Proton’s credibility went down as well as its car sales performance. To date, there are at least 16 other car manufacturing and assembly companies operating in Malaysia and almost identically competing for the same market.

4. The strict competition among local and foreign car companies in the Malaysian market with slow reaction towards the market has caused Proton to keep losing in the competition which allegedly due to low car quality and design compared to the other brands such as Perodua and Honda. Although Malaysia is practicing the protective measures to its both local cars companies, it does not make Proton to become a better option to Malaysian buyers. I believe that most Proton buyers are middle and low income earners, with such socio-economic conditions, Proton and Perodua are the only options which provide affordable cars although they are seen as low in quality, yet these are not sustainable in the long term.

Proton Sales in Domestic and International

1. Proton’s sales performance has went up and down,  Proton's sales performance grew at quite stable rate in the first decade after inception, but plunged in 1998 due to the Asian financial crisis that has severely affected Proton's revenue and profit, but Proton still maintained to hold the majority of the domestic market share. However Proton's sales performance has bounced back and recorded its highest sales volume in year 2002 at 214,373 units. I prefer to say that the year 2002 was the golden time of Proton since its astonishing sale performance and had held over 60 percent of the domestic market share.

2. However, Proton's sales gradually decreased in the following five years due to cheaper and more competitive offerings from another Malaysian car producer, Perodua, as well as foreign cars. Proton's sales have recovered slightly since 2008, but its market share is in a current state of decline. In 2005, for the first time in 20 years, Perodua has taken the ownership of majority market share from Proton. The overall sales and market share of Proton continuously decreased from 2003 until 2013 (until now).

Table 3: A comparison of Proton & Perodua sales in the domestic market. Perodua cars manage to sell in greater numbers due to their cheaper pricing range, in which there are few competitors, as well as their inheritance of generally better designs from their parent company, Toyota.

3. Proton’s involvement into the global market has started in December 1985, it started to export with certain countries that have right-hand drive market such as the United Kingdom, New Zealand and Singapore because left hand-drive were not produced in the particular period. Then, Proton's sales market got enlarged worldwide to major countries such as Germany and Australia. Proton’s export performance has steadily grown and has exported 164,153 cars between December 1986 and December 1997. Proton became the trusted brand by its product, Saga in the United Kingdom. Saga was ranked among the top 20 best-selling cars in the UK and has defeated its competitors from Hyundai and SEAT.

4. However, the success was not too long, in 2012, Proton's sales in the UK collapsed with just 208 cars sold. Our national car which were one popular in Singapore, Germany, the United Kingdom and other European countries, but now has gone differently.

Table 4: Proton's best performance in Australia was in 1998, with 3,182 units sold. Since the late 90s, sales in the U.K have decreased significantly.

Other factors that made Proton failed

1. Lately, Proton has made drastic transformation to its car’s design and engine performance. The transformation has slightly enable to turn-down the bad perception over Proton's products and this can be explicitly seen by good feedback from most buyers as well as people in social media. However that changes were too late as the other companies made better changes in terms of quality and designs as well as higher cost of living that makes Malaysian think twice to buy a car. Yet Proton is still striving in the Malaysian car market as it continuously received monetary injection from the Malaysian government.

2. In 1996 Proton has also bought Lotus. But sales have suffered due to growing competition and a reputation for poor quality and bland models. The severe performance of Lotus in sales and bad financial position (its accumulated lost at the 5 years back was almost RM 1.5 billion) has also caused Proton to lose its position. Because of that, Proton was fully privatized after DRB Hicom bought the Proton‘s shares from Khazanah Nasional Berhad in 2012. Proton continued to struggle, with its market share dwindling to 12 percent last year compared to its golden era in 2002 where its sales was at the peak and has dominated 60 percent of the domestic car market.

3. Proton has also too much political baggage to carry from the supply chain to the distribution channel where it is linked to UMNO. Its monopoly on the low end consumer car segment enables it not only to have good margins but also provide very bad after sales service. On top of the billion of ringgit in Grants poured into the R & D to develop new engines and other products ended up nowhere. Without accountability and transparency it will be a miracle if Proton can move to the next level in car manufacturing.

Proton Sell Its 49.9 Percent Equity

1. This non-preferable performance by Proton in its sales and profits has caused the latest decision which ultimately let to the sale almost half of its equity to a foreign company.

2. Noteworthy, Proton has seen ownership by Malaysian companies such as DRB Hicom, Khazanah Nasional as well as to foreign companies such as Mitsubishi and now to Geely. The latest action taken was not new, the equity holders are kept changing since 2012 and might be changing again if Proton financial difficulties continue.

3. In May 2017, Proton has officially formed a partnership with China’s car producer, Geely Holding. The huge stake of equity in Proton still dominated by DRB Hicom at 50.1 percent and followed by Geely at 49.9 percent. As part of the deal, Geely Holding Group Co. Ltd. will acquire 51 percent of British automaker Lotus from Proton for 51 million pounds. Based on what minister has said, Datuk Mustapha Mohamad, the strategic partnership is for the survival of Proton in the automobile industry. From what minister had said, it is clear that the partnership was due to Proton bad financial performance in making profit each year.

4. Simultaneously, Second Finance Minister has made a ‘neutraliser’ statement (in response to Mahathir’s attack) by saying that Proton is no more depend on the government ‘subsidise’. The  statement clearly wrong, after the deal, government has immediately will inject RM 1.35 billion to the Proton.

5. Tun Dr. Mahathir has expressed his sad feeling over the Proton's equity sale to China's company, but the fact is, the Malaysian company which is DRB Hicom owned by Tan Sri Syed Mokhtar still controls the dominant stake of equity at 50.1 percent compared to Geely at 49.9 percent, which means Proton still remains majority owned by Malaysian entity. The hard-hitting facts that all of us Malaysians have to swallow are Proton is loss-making company, the government has poured billion of Ringgit of taxpayers ‘s money to Proton since before and we cannot do this forever. Nowadays Proton has became the national liability (before the latest deal).

But, Why Proton Chose Geely?

1.The selection process of who going to be the partner for DRB Hicom has taken a long period until Proton has made its final decision. The option was between the French auto giant PSA Group, which produces Peugeot cars, or Geely Automobile Holdings Ltd, the Chinese manufacturer. These two companies have clearly different market access to the world's largest automotive market, which is China, where over 28 million cars are sold annually compared to the other countries. Thus Proton has made its best consideration to choose Geely as the 49.9 percent of equity holder.

2. This deal would enable Proton to enlarge its sales to China’s biggest automobile market. A tiny 1 percent of market access in China would mean to 280,000 cars, which is very meaningful to Proton to gain its momentum in sales and revive back the Proton manufacturing capacity which has gone underutilised lately. With Geely  coming as a strategic partner, it means that Proton might be benefited from Geely as the owner of Swedish car company, Volvo and the London Taxi Company. Proton would be the most preferable choice for any business matter for Geely

Conclusion

In conclusion, the deal with Geely is not a matter of selling our national asset etc, but it is a matter of the survival and to end its prolonged financial troubles. The Government cannot pump more taxpayers’ money into the company anymore. Let us put aside the sentimental judgments on Proton, what Malaysians want are better quality of cars, better designs and affordable cars to be owned regardless of whatever brand. If Proton can fulfill the Malaysians’ demands on what cars they want, Proton’s car models would be the best-selling car in the future. I believe that in the future Proton will be a trusted brand in the world.  

Thank you.

Ammar Atan

AMANAH Youth