PROTON AND THE AUTOMOBILE INDUSTRY IN MALAYSIA

AUTOMOBILE INDUSTRY IN MALAYSIA

Malaysia's car industry is dominated by two local manufacturers which are heavily supported by the government through National Car Policy e.g. trade barriers. These local manufacturers are Proton and Perodua. The automobile industry in Malaysia employs about 350,000 Malaysians. The government maintains its high taxes and duties “to protect their interest” one government official told the Wall Street Journal.

In addition to import duties, Malaysia also imposes an excise tax of between 65 percent and 105 percent—among the highest in the world— as well as a 10 percent sales tax on foreign automobiles sold in Malaysia. These duties and taxes have made foreign cars very expensive for consumers in Malaysia. Some foreign cars to cost almost three times more than the original price.

Jason Ng wrote in the Wall Street Journal, “Foreign car makers and consumers have long grappled with the high tax structure imposed by the Malaysian government to protect local car makers. Malaysia once harbored ambitions to be the Southeast Asian regional automotive manufacturing hub. But it lost in the race to attract foreign car makers after Thailand–now dubbed the Detroit of Asia–showered investors with generous incentives. [Source: Jason Ng, Wall Street Journal, March 4, 2013]

Automobile sales in Malaysia rose from 187,147 in 1990 to 285,794 in 1995 to 420,000 in 2000. The top selling automobiles in Malaysia in 1995 were: 1) Proton Saga; 2) Proton Wira; 3) Perodua Kancil. Honda has a venture with DRB-Hicom and Oriental Holding. Nissan vans are produced locally by the Tan Chong group which also assembles Audis, Peugots, Man, Subarus, Daewoo and Chrysler and lipstick.

Proton: Malaysia’s Automobile Company

Proton (Proton Holdings Berhad) is Malaysia's leading automotive manufacturer. It exports to over 26 countries and has over a dozen models. It produced its 3 millionth care in 2008. The company is headquartered in Shah Alam, Selangor and operates an additional manufacturing plant in Tanjung Malim, Perak. The company was founded in 1983 and was the sole vehicle manufacturer in Malaysia until the establishment of Perodua in 1993. Proton is a Malay acronym for Perusahaan Otomobil Nasional Sendirian Bhd. (English: National Automobile Manufacturer Private Limited). [Source: Wikipedia]

Malaysia is proud of the fact that it produces its own cars. Proton’s first car, the Proton Saga, rolled off the assembly line in July 1985. Later the company made another the car, the Proto Wira. It is a Toyota-Corolla-size vehicle modeled after the Mitsubishi Colt/Lancer. Proton stands for Perusahaan Otomobil Nasional Bhd.

Proton is regarded as something of a boondoggle. The success of the company was a national obsession and the cornerstone of a heavy industrialization effort. Proton got off to a rocky start when the first cars rolled off the assembly line during a recession. The first year 17,000 cars were produced. The company has only managed to survive thanks to generous government subsidies and tariffs that made other car prohibitively expensive.

Proton didn't make profits at first. Sales was largely due to tariffs and nationalist pressures. By the mid 1900s things were picking up. There was a backlog for deliveries of several months. The Proton company was profitable. It employed 4,800 people. In 1995, Proton produced 180,000 cars. More than 10,000 cars were sold in Britain. Locally manufactured components increased from 42 percent in 1985 to 80 percent in 1995. Proton built a second, $800 million plant in 2000 that tripled production capacity.

Importance of Proton in Malaysia

Philip Bowring wrote in the New York Times, “Proton is important not just because it is a huge enterprise in a car-obsessed nation. Proton is key to a shakeup of the whole auto industry, to enable it to compete with Thai and Chinese cars as tariffs come down under various trade agreements. It is also a symbol of a drive for efficiency throughout the government-linked companies that make up some 35 percent of the capitalization of Malaysia's stock exchange. That will mean treading on the toes of some over-protected Malay businesses. [Source: Philip Bowring, New York Times, August 5, 2005 ]

Proton was largely a manufacturer of badge engineered vehicles from Mitsubishi Motors between 1985 and the early 2000s. The company has since produced several indigenously designed vehicles and operates in at least 26 countries, of which the majority are in Asia. Proton was formerly owned by Khazanah Nasional, the investment holding arm of the government of Malaysia. In January 2012, it was taken over by DRB-HICOM, a Malaysian conglomerate in a transaction amounting RM1.2 billion. [Source: Wikipedia]

Proton, predominantly reliant on the local industry is currently undergoing major structural and internal changes, as evident in the appointment of a new owner, partner, Chairman and the launch of various new and upcoming models in an effort to gain an international presence and increase profitability.

Proton History

According to the Proton website: “It all began in 1979. Malaysia's Father of Modernisation, Tun Mahathir Mohamad, (then the Deputy Prime Minister of Malaysia), mooted the idea of establishing an automotive assembling and manufacturing industry in our country. It was Tun Mahathir's dream to accelerate Malaysia's industrialisation capabilities to match those of developed nations. His dream became one step closer to reality when the Cabinet approved the National Car Project in 1982. [Source: Proton website]

Proton was officially incorporated on May 7, 1983. The first model, the Proton Saga, was commercially launched on July 9, 1985. The name "Saga" was chosen by Ismail Jaafar, a retired military soldier, and derived from "saga" (Adenanthera pavonina), a type of seed commonly found in Malaysia. he first new market for the Proton Saga was Singapore, right across the Straits of Johor.

In 1986, barely a year after our first car was launched, we celebrated the official rollout of the 10,000th Proton The following year, we launched the Proton Saga 1.5l sedan and Aeroback models. By then, over 50,000 units of the Proton Saga had been produced and sold in Bangladesh, Brunei, New Zealand, Malta and Sri Lanka. Soon after, Proton cars were distributed in the United Kingdom.

In1988, Proton debuted at the British International Motorshow, walking away successfully with three prestigious awards for quality, coachwork and ergonomics. The company progressed towards in-house engine operations in 1989. A Transmission Assembly Plant was also set up in Shah Alam. In 1996, proton produced it one millionth car. This achievement was buoyed by several significant new model launches including the Proton Tiara, Proton Wira 2.0 Diesel and the two-door Proton Putra, in addition to our existing lineup of the Proton Wira, Proton Satria and Proton Perdana. In the same year, we acquired a controlling stake in Group Lotus.

Proton was founded with the help of Mitsubishi. In 2003, the Malaysian government owned 32 percent of Proton. Mitsubishi which was part Daimler Benz had a 17 percent stake. At that time Mitsubishi was trying to get rid of its shares and Proton was making plans to take on a different foreign partner. The Malaysian government believed that Mitsubishi wasn't transferring technology fast enough to Proton. In March 2004, Mitsubishi ended its alliance with Proton. It sold its 7.9 percent stake in Proton for $99 million to come up with cash to pay debts at home and stem its losses after slumping sales in North America, and in the face of falling Proton sales over foreign competition. After that Proton looked for another partner. Mitsubishi continued to provide production parts and components to Proton.

Proton and Volkswagen, one of the world's largest car companies, signed an agreement in October 2004 to explore long-term strategic collaboration. According to Kyodo: “Volkswagen was eyeing entering the growing Southeast Asian market withoutpumping in too much capital. Volkswagen had counted on using Proton to assemble two Volkswagen models.” Talks with Volkswagen broke down in 2006 over a disagreement on the company’s ownership. Volkswagen upset Proton by calling off of the deal without informing the Malaysians. Volkswagen Chief Executive Bernd Pischetsrieder said,"We had a very specific idea how we wanted to proceed there. Unfortunately, the Malaysian government, state investment arm Khazanah and Proton had different ideas. Therefore, what we wanted in the cooperation with Proton will not materialize.

In 2009, Proton Edar Sdn. Bhd. and Edaran Otomobil Nasional Berhad entered into a new Master Dealership Agreement to rationalise the sales and services network of our vehicles, to ensure a more efficient nationwide distribution

In 2012 Proton was privatized. It was taken over by DRB-HICOM Berhad. With DRB-HICOM's experience as Malaysia's largest manufacturer of automobiles, the company is confident in transforming Proton and also LOTUS as globally-recognised automotive players.

Proton Technological Developments

In 2000, we unveiled our prototype CamPro engine at the Lotus factory in Norwich, United Kingdom. The CamPro engine is aimed to show Proton's ability to produce engines with good power output and meet newer emission standards. The first model to incorporate the CamPro engine was the Gen•2 which was launched in 2004. The variants of the CamPro - the CPS and IAFM made their debut in 2008.The CPS was first introduced in the Proton Waja and Face-Lift Gen•2 while the IAFM was incorporated in the new Proton Saga. Proton further cemented its success with the introduction of its first MPV – the Proton Exora in 2009. The Exora is widely accepted domestically and also in Thailand where the model was recognised in the "Top 10 Vehicles in Thailand" by Bangkok Post newspaper.

In 2012, Proton introduced the turbo variant of the CamPro engine; the all-new 1.6-litre Campro Charge Fuel Efficiency (CFE) engine with performance comparable to that of a 2-litre engine. The CFE engine was first introduced in the Exora Bold and Exora Prime. With the determination to capture international market, Proton introduced the Proton Prevé dubbed as Proton's first global car in 2012. In February 2013, the Prevé went on to achieve a 5 Star Australasian New Car Assessment Program (ANCAP) Safety Rating, a historical first for Proton.

In December 2012, Proton acquired all engine technologies and knowledge developed by Petronas since 1997, a significant milestone which signified more exciting things for Proton moving forward. With the acquisition, Proton now have ownership of a more powerful yet fuel efficient family of naturally aspirated and turbocharged 2.0L engines, as well as a 2.2L turbocharged version to complement its existing CAMPRO engine line-up. This move also ensured that the Petronas-developed engines will remain Malaysian and for the Malaysian people to experience and enjoy through the introduction of the engines in Proton's existing and future models.

Additionally, the agreement gave Proton access to the Spray-Guided Gasoline Direct Injection technology, which was co-developed by Petronas Research Sdn Bhd with a well renowned engineering firm. This technology, which helps increase engine performance and improve fuel efficiency drastically, will propel Proton to a different playing field, to offer its customers exciting and competitive vehicle line-ups in the future.

Proton Hybrid

With growing concerns with protecting the environment, managing carbon footprints as well as volatile petrol prices, Proton started to develop its electric and hybrid vehicles. In 2010, Proton participated in the Royal Automobile Club's Brighton to London Future Car Challenge with the Saga EV and Exora Range-Extender Electric Vehicle. Proton achieved success at the Challenge when the Exora REEV was awarded the Best E-REV Vehicle. The following year, the Exora REEV was announced joint winner with the 2012 Toyota Prius plug-in petrol hybrid as the Best Overall Extender Range/Plug-in Hybrid Vehicle and The Most Energy Efficient Multi-Purpose Car-Prototype.

In 2012, livelifedrive.com reported: “It may be three years late by then, but at least the Proton Exora Hybrid, Electric Vehicle (EV) and Extended-Range Vehicle (E-REV) are arriving, with a commercialisation timeline scheduled for mid-2014. To help Proton push out competitive clean and green cars, the government is allocating RM120 million to Proton for research and development purposes in 2013, following up on the RM 100 million already allocated to our national car maker this year. [Source: .livelifedrive.com ]

Just for reference sake, the Chevrolet Volt required US$1.2 billion to develop, while the Nissan Leaf took US$5.6 billion from conception to completion. Proton, on the other hand, has reportedly set aside RM 500 million for its collaboration with UK-based Frazer-Nash Research. After four years of working together, Proton currently has 40 professionals and 30 semi-professionals in the green field, and a big achievement to show for it: the Proton Exora E-REV winning the top prize in the Extended Range EV (E-REV) category at the Brighton to London Future Car Challenge held in late 2010.

Proton Sales Lag in the 2000s as Customers Complain

Proton made up only 11 percent of the domestic market in 1985. Sales topped $1 billion for the first time in March 1994. In 1995, more than 10,000 cars were sold in Britain. Some buyers considered them "as good as Japanese cars at a fraction of the cost." In the early 2000s, 20 percent of Proton’s cars were sold abroad and exported to 18 nations.

In the late 1990s, Proton made six of every 10 cars sold in Malaysia. This partly due to tariffs of foreign automobiles which were still as high 300 percent in 2003 but had to be reduced to 20 percent in 2005 as part an Asian trade agreement. To expand its export market Proton began making vehicles in 1993 which could be steered on the left-hand side like cars in the U.S. In 2004 Proton made up half of sales in Malaysia but there was stiff competition from South Korean and Japanese car manufacturers. At that time Proton was regarded as out of date. The company reported losses.

In June 2005, Paul Tan wrote: “Look at all the unsold parked cars in Proton’s factory in Shah Alam. Manufacturing capacity doesn’t seem to be a problem for Proton. The problem is selling all the cars. Somehow Proton does not realise that it’s declining sales are because the we, the rakyat are sick of them shortchanging us on the quality control issues. The export market Protons are of so much higher quality than ours. Proton Persona vs. Proton Wira. Anyone would take the Persona anyday. Proton used to hold 60 percent of the auto industry but it’s share dropped to 44 percent last year, a steady decline from 48 percent in 2003. [Source: Paul Tan, June 14, 2005]

M. Jegathesan of AFP wrote: “Malaysia’s national carmaker Proton is blaming a flood of low-cost foreign imports for cutting its market share, but critics say the real problems are its “cheap” image and poor track record. Proton’s arch defender Mahathir Mohamad, the former premier who launched the ambitious national car scheme in the 1980s, said last week unfairly priced foreign imports were making it hard for Proton to compete, and called for more restrictions. In happier times, Proton used to sell six out of every 10 new cars in Malaysia, but growing foreign competition has seen its share of the market fall to 44 percent in 2004 from 48 percent in 2003, and the outlook is poor. [Source: M. Jegathesan, AFP, June 14, 2005 <<<]

“Toyotas, Nissans and Kias already crowd the nation’s roads, and many more will come as the high excise taxes and import duties which have protected Proton are stripped away under a regional trade pact that comes into full force in 2008. Industry analysts and car owners say Proton needs to address its perennial bugbears – poor assembly and after-sales care, and high maintenance costs – to achieve its goals of boosting both domestic sales and exports. <<<

“Far from being proud of owning the national car, many Proton drivers say they only opted for one because they could not afford an import, and after unhappy experiences, they plan to switch to a foreign model when they can. Proton’s 1.6 litre Waja sedan is considered among the best of the nine-model range, but businessman Y.S. Chong told AFP that while his Waja “so far is okay” he would not buy another national car if he could help it. “The Waja is attractive but spare parts are expensive and after-sale service is poor,” he said as he left a service center where he witnessed customers arguing with workers over shoddy service. “If I have the money, my next car will be a Honda.” <<<

“Lim Boon Ling, a 39-year-old property executive, aired similar sentiments as he strolled around a Proton dealership in suburban Kuala Lumpur, saying Proton had gone for style over substance when building its vehicles. “The design of Proton cars is OK, but the parts are flimsy and of poor quality,” he said, adding that many people were put off the brand because of maintenance problems. Lim, who despite his misgivings was considering buying a Waja because of its competitive price, also checked out Proton’s latest addition, the Savvy compact, marking Proton’s return to the small-car segment after a decade-long absence. “This model will fail. They launched it late compared to Perodua’s new Myvi compact car,” he said, referring to the Perusahaan Otomobil Nasional Kedua (Perodua) model which has become one of the country’s top-selling cars. The Myvi, developed in collaboration with Perodua’s major shareholder Daihatsu Motor Co. of Japan, is priced at about 50,000 ringgit (US$13,158) compared to the Savvy at about 40,000 ringgit. <<<

“Proton officials admit privately that negative public perception is the greatest obstacle to increasing sales and penetrating foreign markets, and that they need to change the mindset and improve after-sales service. “We want to move away from this image that we sell cars that are cheap, or even cheaper than cheap,” a spokesman said last week. In the face of the flood of imports, Proton is aiming to bolster its bottom line by selling at least 100,000 vehicles abroad annually by 2008. Exports have doubled from a tiny 8,000 units in 2003 to 17,000 in 2004 and it has set a goal to double overseas sales in 2005. But industry analysts say that despite its plans, Proton is slow on its feet, with a long time lag between new offerings. Also, the poor quality of some models is hurting its overall reputation. <<<

“Proton must be hungry for new models,” an auto analyst with a local brokerage told AFP. “If you look at Perdana and Waja models, it is good. But the smaller cars like GEN.2 and Tiara, the quality is low. This is affecting Proton’s image,” she said. The analyst pointed out that Proton is as old as Hyundai but the South Korean maker is exporting up to 2.0 million cars annually compared to 17,000 from Proton.

Mahathir, who is an adviser to Proton, said last week that critics must be patient with the automaker, and insisted that the national car project had wider benefits to Malaysia. “The idea of a national car is not to beat our chest. We want to modernize our country through skills development,” he said. But Mahathir said Proton must remain competitive. “If labor cost is high, maybe we may not be able to compete and maybe we will say goodbye to Proton,” he warned.

Ahmad Fitzrie Baharom Alam Shah, an American-educated executive in Proton’s corporate planning division, told the New York Times in 2007 the company was “concentrating on regaining market share that we lost” after regional trade restrictions were eliminated in 2006. This allowed other Asian manufacturers to encroach on Proton’s hegemony but, as he noted, “China, South Africa and Iran are the growth markets for us.” The three countries are expected to help Proton significantly increase its 200,000 annual output. [Source: Towle Tompkins, New York Times, November 11, 2007]

Proton and Lotus

In October 1996, Proton acquired an 80 percent stake in Lotus Group International Limited, valued at £51 million. The controlling interest was purchased from A.C.B.N. Holdings S.A. of Luxembourg, a company controlled by Italian businessman Romano Artioli, then also the owner of Bugatti. Proton's stake in Lotus was later increased to 100 percent in 2003. The acquisition of Lotus witnessed the involvement of the British company in the development of suspension and handling elements of all Proton cars launched since 1996. The Proton Satria GTi, widely regarded as the best Malaysian car ever produced owes much of its success to Lotus' contributions.

Towle Tompkins wrote in the New York Times, “ Ahmad Fitzrie Baharom Alam Shah, an American-educated executive in Proton’s corporate planning division, said He said the engineering and development prowess of Lotus gave Proton an edge in producing its bread-and-butter sedans. As for performance forays, that’s where Mr. Asri comes in. He is deeply involved in the company’s R3 initiatives. That stands for race, rally and research, and is Proton’s version of Nissan’s Nismo and Toyota’s TRD in-house performance divisions. [Source: Towle Tompkins, New York Times, November 11, 2007 +++]

“Proton takes, for example, its Savvy hatchback, adds spoilers, camshafts, steel wheels, performance tires and one of those Alaska pipeline-size tailpipes and turns it into the kind of boy racer familiar to Americans who regularly see tricked-out Toyotas, Nissans and Hondas. Mr. Asri also plays a part in keeping Proton’s cars involved in rally and endurance racing and in sponsoring an A1 race, with national teams competing in a world cup format, at Sepang this month. +++

“Lotus accounts for much of Proton’s image outside Asia. From its 1948 origins to its current Elise and Exige models, Lotus has adhered to the “subtract weight to go faster” theory of sports car design. An American version of the midengine Elise accelerates from 0 to 60 m.p.h. in less than five seconds — and at 1,975 pounds, weighs a thousand pounds less than the New York Giants offensive lineup.” +++

Test-Driving a Proton-Made Lotus on Malaysia’s Formula One Track

Towle Tompkins wrote in the New York Times, “Even though the woman in full burqa isn’t taking a picture of me with her cellphone, it’s still a special moment as Faisal Asri instructed me to brake late approaching the turn, downshift and accelerate toward the apex and then floor it. Easy for Mr. Asri, because he’s a championship motorcycle racer and an important member of the motorsports division of Proton, Malaysia’s national car company, which is also the parent of Lotus, the British sports car maker. Not so easy for me, since my racing experience consists of one day at the Bob Bondurant School of High Performance Driving and occasional G-force forays on karting tracks and Interstate 95 exit ramps. Plus, I’m driving a Lotus in Malaysia, so I’m shifting with my left hand and tracking the car from the unfamiliar right-hand side. [Source: Towle Tompkins, New York Times, November 11, 2007 +++]

“I am also intimidated by the Sepang International Circuit, home to a Formula One race, the Malaysian Grand Prix, and a course considered one of the world’s fastest and best laid-out. Not that I’m negotiating the 3.4-mile, 15-turn circuit all that fast, but my hope is that after the inaugural lap, I’ll be able to make like Michael Schumacher. +++

“Lotuses are known for their go-kart-like handling as well as their handcrafted feel and are essentially racecars that have been tamed for everyday driving. At Sepang, with helmets snugly in place, Ms. York and I rode a couple of laps in a Proton Persona with a professional driver, Oh Kah Beng, at the wheel. Mr. Beng’s brisk tour gave us a sense of the circuit’s combination of challenging chicanes, fast straights and blind uphill turns. Then it was on to the Elise.” +++

“Michael Schumacher, the Formula One driver, says in a new book about his 91 Grand Prix wins and 7 World Championships, that there are stretches like the Turn 5 and 6 combination in Malaysia ”where all you can do is brace yourself with all your strength against the centrifugal forces; you’re fighting to be able to do things like keep your head up or change gears; you’re fighting to keep control.” I know what he means: driving the Lotus fast — and in control — at Sepang was difficult. Some of the challenge I ascribe to the right-hand driving position and shifting. Mostly, it’s my inexperience with the car and the course.

“My couch-potato preference has always been open-wheel racing — IndyCar, Formula One, Champ Car — so charging around a genuine Grand Prix track was quite entertaining. Both Ms. York’s red Elise and my blue version easily exceeded 100 m.p.h. on the two main straights, and after six laps I felt that I had mastered some of the turns, although the first-gear hairpin that links the two straights was still a ragged exercise. The lightness of the car, the power from its 1.8-liter 190 horsepower engine (designed by Toyota and built by Yamaha) and its superb suspension made the Lotus a thrilling delight to drive fast.

Malaysia Sells It Stake in Proton

In 2012, Malaysia's state investment firm sold its 43 percent stake in Proton. James Hookway and Ankur Relia wrote in the Wall Street Journal, “The sale, to Malaysian conglomerate DRB-Hicom Bhd. for 1.29 billion ringgit ($412 million) could boost Proton's competitiveness in a crowded Asian auto market. The total size of the deal could double. After purchasing Khazanah Nasional Bhd.'s stake for around 5.50 ringgit ($1.75) a share, DRB-Hicom is expected to make a general offer for the remaining shares of Proton that it doesn't own at the same price, which could bring the total to around three billion ringgit (around $1 billion). [Source: James Hookway and Ankur Relia, Wall Street Journal, January 16, 2012 /=\]

“A Proton deal had been expected for months. Seeking to stimulate growth and modernize management in a country where the state has controlled many key businesses, Prime Minister Najib Razak's government is pushing the sale of government stakes. The effort is touted as part of an economic overhaul that Mr. Najib, who is chairman of Khazanah, wants in place before he calls a national election by March 2013. "The overall principle is that we want the government-linked companies to sell off their noncore and noncompetitive assets," Mr. Najib said in an interview last week. "We are always looking out for how to add value to the country." /=\

“The sale of the Proton stake, Mr. Najib said, is another deal that could help push Malaysia's private sector forward. In a prepared statement Monday, Khazanah Managing Director Azman Mokhtar said the sale is being made "with the aim of putting government-linked companies on a stronger and more competitive footing," while "building the entrepreneurial capacity of Malaysian businesses in key sectors." /=\

“Khazanah said it had received a number of approaches for Proton in recent weeks. Once the dominant player in the Malaysia, Proton has lost market share in recent years. New competitors have emerged at home, while the lowering of some import barriers—a consequence of Malaysia's joining a Southeast Asian free-trade zone—has let in foreign auto makers. Malaysia is the region's largest passenger-car market. /=\

“Khazanah's exit from Proton could open new doors for the Malaysian car maker, said Ahmad Maghfur Usman at OSK Research, which is based in Kuala Lumpur. "There are lots of synergies that could be gained between DRB-Hicom and Proton," he said. Chief among them is the relationship between DRB-Hicom, an automobile, financial-services and construction company, and Germany's Volkswagen AG, which has been looking for a manufacturing base from which to supply the fast-growing Southeast Asian market. The companies last year signed an agreement to assemble cars in Malaysia. DRB-Hicom's purchase of Proton would enable VW to use the Malaysian auto maker's underused state-of-the-art manufacturing plant at Tanjung Malim. /=\

“Mr. Ahmad said a partnership with VW could provide the Malaysian maker access to a larger global market. DRB-Hicom said it will work to make Malaysia "a preferred automotive hub capable of rivaling its neighbors." It didn't elaborate on its plans for Proton. The deal could further add to the influence of DRB-Hicom's owner, Syed Mokhtar Al-Bukhary, who also bought Khazanah's 32 percent stake in national postal company Pos Malaysia for 600 million ringgit when Mr. Najib's government began its divestiture program. The Malaysian tycoon rose to prominence in the 1980s when the country was led by Mahathir Mohamad.” /=\

Can B-Hicom Berhad Turn Proton Around?

In May 2013, Adrian Goh wrote in Yahoo Finance: “DRB-Hicom Berhad might have been seen as Proton's saviour, but the Malaysian investment holdings company is not being recognised for it by the market. The well-known conglomerate is primarily in the automotive, property development, engineering, infrastructure and construction business. Despite rumours the company will be taken private by major shareholder Syed Mokhtar Al-Bukary, later denied, it's trading at levels Warren Buffett might be interested in. [Source: Adrian Goh, Yahoo Finance, May 8, 2013 *^*]

“DRB-Hicom has faced criticism over the years for its management of automotive marque Lotus. Now the question is whether they can do better with Proton. DRB-Hicom has a reinvention plan on the cards. General market sentiment that DRB-Hicom will not be able to reinvent itself and take the lead in the region's car market. The issues range from dented market confidence in Proton vehicles, the entrepreneurial nouse of its management and disgruntled former executives. *^*

“The national car Proton has suffered poor management and its cars have been criticised for poor quality for years. The Gen 2 sedan was supposed to turn its fortunes around, but was labelled "uninspiring" by critics. And the BBC car show Top Gear, famously smashed a brand new Proton with a sledgehammer because of its quality. If Proton had been managed well, it never would have needed to be sold to DRB-Hicom to begin with. Also, DRB-Hicom promises better after-sales service, which is in itself an admission that this has been a problem. It will take a herculean effort to bring Proton to its full potential and investors will need to see a well thought-out strategy executed flawlessly to bring this about. *^*

“Among recent departures are Proton Managing Director, Syed Zainal Abidin and his CFO, Azhar Othman. Both exited at the same time, raising many questions about the decision for their departure. Then there's Lotus CEO, Dany Bahar, who is suing for 6.7 million pounds for wrongful dismissal. Incidentally, DRB-Hicom is countersuing. Lotus received ten million pounds in government funding in the United Kingdom from the so-called Regional Growth Fund. The fact that it needs government hand-outs suggests that it does not have enough money of its own. Former CEO Dany Bahar wanted to build five new sports car models, but the plan was scrapped when Proton was taken over by DRB-Hicom. *^*

Perodua

Perodua (Perusahaan Otomobil Kedua Sendirian Berhad. English: Second Automobile Manufacturer Private Limited) is Malaysia's second largest automobile manufacturer after Proton. It was established in 1992 and launched their first car, the Perodua Kancil in August 1994. 'M2’ refers to the codename which was used when the project to establish Perodua was still Top Secret. The shareholders of Perodua are UMW Corporation Sdn Bhd with 38 percent stake, Daihatsu Motor Co. Ltd. (20 percent), MBM Resources Bhd (20 percent), PNB Equity Resources Corporation Sdn Bhd (10 percent), Mitsui & Co. Ltd (7 percent) and Daihatsu (Malaysia) Sdn Bhd (5 percent). [Source: Wikipedia]

Perodua mainly produces minicars and superminis and does not have models in the same market segments as Proton. They do not design or engineer their main components such as engine and transmission in house. Perodua cars have historically used Daihatsu component designs. Daihatsu held a 20 percent stake in Perodua at the company's launch, increasing this to 25 percent in 2001 and then to 35 percent. In 2004 Perodua started assembling the Toyota Avanza at their plant in Rawang, for sale in Malaysia.

Perodua is headquartered in Serendah, Selangor, Malaysia and employees 10,000 people. It sold over 189,000 vehicles in 2012, which is its highest ever sales record. Its estimated market share in Malaysia of 30.2 percent. It is planning to set up a second car manufacturing plant from the planned $770 million investments in the coming years. The Perodua Myvi has been the best-selling car in Malaysia for 8 consecutive years, between 2006 and 2013 respectively. Perodua is set to become the largest manufacturer of compact cars in South-East Asia. In October 2005, it had produced a cumulative total of 1 million cars. By July 2008, it is expanding to 240,000 per year.

As compared to Proton, Perodua has been quite successful in its business ventures. Its cars are very popular among Malaysians, such as the Perodua Myvi, which sold 80,327 units in 2006, outselling its rival's best selling car, the Proton Wira then, which only sold 28,886 units in Malaysia. In 2006-2010, Perodua became the best selling car company in Malaysia. In the first half 2011, the table has turn upside down where a highlight of the figures was that Proton had overtaken Perodua to be the best-selling brand this year. It’s been many years since the first national carmaker has been No.1 and though part of the reason was that Perodua’s supply in the second quarter was limited (due to phasing-out of the old Myvi) and also the problems caused by the amendments to the H-P Act, it has also to be said that Proton’s current line-up is its strongest ever and has drawn many customers, noted the core models Proton Saga and Proton Persona. Proton delivered 85,223 units to take a 28.7 percent share of the TIV while Perodua delivered 79,467 units, a difference of 5,756 units.

In the United Kingdom Perodua cars were sold by some Proton dealers who wish to attract customers seeking a smaller and cheaper alternative to the Proton range. Sales numbers in the UK were small, however, and in 2008 Perodua sold only 624 cars (down from 914 in 2002) and insignificant compared to 2008 figures of 28,036 for Hyundai, 29,397 for SEAT. Sales were up slightly in 2009 (to 650) and then to 761 in 2010, mainly due to the success of the new Perodua Myvi. Besides the UK and Singapore, Perodua also exports their cars to Mauritius, Brunei, Sri Lanka, Cyprus, Malta, Egypt, Nigeria, Senegal, Lebanon, Qatar, Saudi Arabia, Syria, Nepal, Fiji and Republic of Ireland in small numbers by local dealers.

TD Cars

The TD2000 is a retro-classic roadster styled after the MG TD. It is produced by TD Cars (Malaysia) Pte. Ltd., a private limited company incorporated in Malaysia in 1998. The company acquired the rights, intellectual properties and trademarks associated with the production of the TD2000 Roadster which was originally developed in Australia. The car is assembled in Malaysia today and exported overseas. It is available in Malaysia, Australia, Japan, Brunei, New Zealand, India, the Philippines, Scotland, Singapore, Thailand, England, Ireland and the Middle East. TD Cars would like to enter the American market, but meeting safety regulations would be difficult. Not only that, the car retails in Malaysia for $50,500 and up. [Source: Wikipedia]

Towle Tompkins wrote in the New York Times, “Since 2000, TD Cars, based about 15 miles outside Kuala Lumpur, has been selling a two-seater in the style of a 1950s MG TD roadster. Based on a design that originated in Australia in 1984 and incorporates some elements from MG’s later TF series, the Malaysian TD has a 130-horsepower 2-liter Toyota engine. K. B. Woo, a principal in TD Cars and the director of Malaysia’s Institute of the Motor Industry, let me and my colleague, Jessica York, take his red TD 2000 Silverstone MK II for a spin. [Source: Towle Tompkins, New York Times, November 11, 2007]

“It was Malaysia’s Independence Day holiday, so Kuala Lumpur’s streets were relatively uncrowded. During our half-hour drive, we found that the fiberglass-and-steel car had roughly the same acceleration as a Mazda MX-5, but with considerably less handling and steering sophistication, and with a snugger interior. What the TD 2000 does, though, is attract as much attention as Paris Hilton at a bail hearing. The woman in full burqa, standing at the base of the Petronas Towers, whipped out her cellphone to record our passing.

Malaysia Reduces Import Tax on Some Foreign Cars

In 2013 Malaysia began taking steps to gradually scrap an import tax on cars shipped from Japan and Australia. Jason Ng wrote in the Wall Street Journal, “Analysts say, however, that the move toward opening up the automotive sector isn’t enough to bring down barriers that stifle the industry. The government recently began dismantling some of the duties levied on imports under a free-trade agreement signed with the 10-member Association of Southeast Asian Nations, or ASEAN. Malaysia slaps cars imported from Japan and Australia with a duty of 15 percent and 13.6 percent, respectively. Under measures announced this week, the Southeast Asian country will reduce import duties and eliminate the tax by 2016 for cars from the two countries. [Source: Jason Ng, Wall Street Journal, March 4, 2013]

“The move is positive and a step in the right direction for the industry,” Aishah Ahmad, president of the Malaysian Automotive Association, told The Wall Street Journal. The trade group represents more than 50 car makers and assemblers of various foreign and local marques. The move will benefit consumers by reducing prices of cars over the long term. But the overall impact will likely be minimal given that most Japanese cars are assembled in Thailand–where they are already exempted from paying imports duties under the ASEAN free trade agreement–before being shipped to Malaysia, said Ms. Aishah.

Out of the 627,753 units sold in Malaysia, only about 13,000 units were imported from Japan, according to the Maybank Investment Bank Bhd. Currently, there are no known car imports from Australia into Malaysia. In the near term, however, prices for the imported Japanese cars are likely to remain high.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Malaysia Tourism Promotion Board, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated June 2015

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