By Vanitha Nadaraj
Proton began as a symbol of hope three decades ago. But it fell into the abyss of protectionism, making the national car and carmaker Proton Holdings weak.
Its reputation as a sub-standard product, along with stories of company mismanagement, are almost impossible to quash. The effect is showing in the numbers – it has dived from holding 74% of the automobile market share in Malaysia in 1993, to 15% now.
Some consider Proton a national embarrassment, and feel the government needs to drop its “too nationalistic to fail” philosophy, and be realistic about Proton’s future.
Others are slightly more hopeful. They feel there is still some life left in the brainchild of the former prime minister, Mahathir Mohamad, and more government support is needed.
Ironically, it was when Mahathir resigned as Proton’s chairman last week that government officials and lawmakers started saying that Proton was a failure. The strongest comment came from the matter-of-factly statement issued by International Trade and Industry Minister, Mustapa Mohamed, that triggered the present debate on Proton.
“The government believes that the current business model adopted by Proton is not sustainable,” he said, adding that future assistance from the government will depend on Proton meeting certain conditions.
Among the conditions are for Proton to get a strategic foreign partner, be better managed, be treated as a business, and to put in place some “tough but necessary” measures.
It is not uncommon for government-linked companies in Malaysia to get public funding when faced with losses.
Malaysia Airlines Berhad, which accumulated huge financial losses over the years, was constantly getting public funding. Last year, the government stepped in, delisted it, and put it under a restructuring exercise.
Proton also has a financial haemorrhaging problem, and the government has on numerous occasions come to its rescue. Since 1983, the government has given Proton almost RM14 billion (US$3.6 billion) in grants, various forms of assistance, and taxes foregone. Last year, the government gave RM100 million (US$25.5 million) as soft loans to struggling Proton vendors whose payments from Proton have been delayed.
The government is now hesitating over a fresh request for money from Proton.
Depleting government revenue, due to the collapse in oil prices, is making it hard to continue bailing out Proton. There may be a slim chance that the government will come to Proton’s rescue again, now that Mahathir, who is on a mission to remove Najib Razak as prime minister, is no longer Proton’s chairman.
Poor track record
From the very beginning, Proton was grappling with sub-standard quality, but many put up with them, hoping the teething problems would disappear. The high taxes on imported cars gave Proton an advantage and, subsequently, a lion’s share in the passenger car market in Malaysia.
The protectionism continued for more than three decades, and Proton never became a recognised brand outside the country.
The supporting industries never took off either. In all those years, local suppliers for Proton who manufacture parts like the brake system, clutch, automotive electronics, wiring harness, did not become key regional players.
Malaysia’s supporting industries never took off either. In all those years, local suppliers for Proton who manufacture parts like the brake system, clutch, automotive electronics, wiring harness, have not become key regional players like those from other countries.
Vietnam instead is miles ahead of Malaysia in that respect. It is now a major vehicle parts producer with exports going primarily to neighbouring countries. Indonesia and Thailand get 43% and 53% respectively of their parts supplies from Vietnam. Vietnam has already established its role in the ASEAN automotive industry and is working towards further strengthening its position.
Thailand is the ninth largest vehicle manufacturer in the world and way ahead of the rest in ASEAN. About half of all vehicles made in Thailand are exported.
ASEAN is in a unique position – a major vehicle producer and a major market. ASEAN is the sixth largest automotive market in the world and is likely to climb to the fifth spot by 2020. Car ownership in ASEAN would rise from nearly 40 million by 2015 and around 55 million by 2050. This will be largely driven by the escalating demand in Indonesia.
It makes more economic sense to work together as a region than each trying to outdo the other. Malaysia needs to realise that it may need to rethink its automotive policies and dismantle its protectionist policies all together.
This was one of the recommendations proposed by the EU-ASEAN Business Council in 2015 for there to be a thriving ASEAN automotive industry. European carmakers want to increase their investments in the region and are hoping ASEAN countries would create a more level playing field, reduce protectionism and operate as a strong competitive economic bloc. Once this happens, ASEAN will be a powerhouse in the production of vehicles and also the components, and also as a market.
Drastic, but necessary
While this solution may seem way too late, it is still the best option. Proton has a total of 40,000 people who are dependent on the company – 10,000 employees and 30,000 people who are part of its wider ecosystem.
Under the present circumstances, Proton may not able to continue operating for long and would need to start retrenching employees and sell its assets to pay debtors. Proton has also never been able to attract a suitable and willing foreign partner. Numerous failed attempts over the years attest to this.
Two years ago, the Chinese car-maker Geely signed a partnership deal with Proton, and this could be the future in which Proton is heading.
Otherwise, the next best thing would be to either put Proton up for sale, or to put it to sleep.