Proton's Saga - Part 1

Well Proton has been sold again - this time to DRB Hicom. This is a 28 year old saga now - and a very expensive one for the entire nation.

Let me begin by suggesting the solution that could have saved Proton : There should have been more market discipline imposed on Proton. We should have followed the Japanese model more closely.

To help sustain Proton, Government policy pushed up the prices of foreign car brands to the sky. In Malaysia an imported car sells at three to four times its market price compared to most countries around the world.

Proton should have been given protection for a limited time only, say no more than 15 years. In 15 years, excise duties, import taxes and the APs required to import cars should have been systematically dismantled (starting say after the first five years, then reduced further every three years until zero protection after 15 years). Then car prices in Malaysia would have closer reflected market prices for cars. Proton should have been told to just compete and "do or die".

We did not do that. Instead we have been mollycoddling Proton for 28 years with no end in sight (just like we have been mollycoddling everything else). And the net result is we have NOT created a self sustaining indigenous automotive industry. Neither have we produced auto-industry engineering talent that can stand and compete on its own. In short - in terms of productivity and creating new wealth in the auto industry - we have not produced much.

Proton has actually "died" five times already - and it has been revived by "artificial resuscitation". This most recent sale of Proton by Khazanah to DRB-Hicom is just another attempt at 'artificial resuscitation'. And the oxygen needed to revive Proton is the money in your pocket and mine. We will pay to keep Proton artficially alive.

Folks, think logically ok. All the protection that you and I can possibly imagine has been provided to protect Proton. (up to 150% import duty on foreign cars, excise duties, the AP regime, huge Government funding, huge Government support etc) In 2000, Petronas even used oil money taken directly from the ground to resuscitate Proton. Still Proton cannot survive. Here is a time line :

1. The first Proton rolled out circa 1984. At that time Proton was owned by Hicom Holdings.

2. 11 years later in 1995 Proton was sold to Tan Sri Yahya Ahmad.

3. Five years later in 2000 Proton was sold to Petronas - after Tan Sri Yahya's untimely death.

4. About 15 months later in 2002 Petronas sold Proton to Khazanah Nasional Bhd. (Petronas was smarter).

5. Now 10 years later in 2012, Khazanah has sold its controlling stake in Proton to DRB-Hicom.

6. So how long will it be before DRB-Hicom will sell Proton? And to whom?

The fact that all these many people bought and sold Proton simply means that they either lost money or they did not see a future in Proton. No one sells a profitable company or a viable company. You can say that Proton has failed FIVE times already.

Here is my view now. The brand name Proton CANNOT be saved. It is impossible. There is a simple reason. Do read on.

However nearly all of Proton's own manufacturing plants and factories, ALL of Proton's own workforce, including the engineering jobs - can all be saved. In fact Proton stands poised to be more succesful now than ever before. Proton stands to make more money now than ever before.

However this CANNOT be achieved by making Proton cars. This can only be achieved by manufacturing tie ups with Volkswagen, Mitsubishi, Haw Thai of China, General Motors or whoever else to make NON Proton brands for sale at market prices in the world markets.

(I dont think Volkswagen can JV with Proton to make the 2.0 litre Passat and sell it inside Malaysia at prices below that for the 1.4 Litre Toyota Vios. Meaning VW also hides behind protective barriers in Malaysia. I think the EU, the WTO or someone else will come down hard on VW).

Secondly Proton's domestic supply chain (the local parts and components manufacturers) who CANNOT supply parts to Volkswagen, Mitsubishi, General Motors etc on account of poor quality, high prices or dont know how to speak English or communicate, well they will die a natural death.

Why cant Proton survive? Because they never learnt to compete. They never learnt to compete because they enjoyed so much protection and subsidies.

Folks, if you want to become a world class high jumper, your target can never be achieved if you lower the bar for ever. In 1993 Javier Sotomayor of Cuba set the world record for the high jump at 2.43 metres (8 feet). The record still stands. Here is Javier breaking the world record.

Ok in sports we are not like Cuba - yet. But if we set the bar in Malaysia at 5.0 feet and get our boys and girls to jump over it with their eyes closed, then award them Datoships for jumping 5.0 feet, even pay them fat salaries (RM40,000 per month) for jumping 5.0 feet we are doing nothing but indulging in 'syiok sendiri'. Buang masa dan buang duit saja.

But the biggest victims will be our boys and girls. If they only have to jump five feet and still get Datoships and get RM40,000 per month salaries why should they train harder to jump 8.0 feet like Javier Sotomayor? Javier Sotomayor may not even be getting RM5,000 per month.

What is the difference between Javier Sotomayor and our boys and girls? There is no oil money to burn in Cuba. We have oil money to burn. We have plenty of money to waste.

But if we tell our athletes "We have oil money to burn. You jump 6.0 feet next year, only then we will give you a Datoship plus RM10,000 a month" - they will be motivated to try harder. Then we say the same to the next generation of athletes - "We have already achieved 6.0 feet. Now only if you jump 7.0 feet you will get a Datoship and money. Finally we can tell them, "We can do 7.0 feet already. Now you beat Javier Sotomayor at 8.0 feet, only then we will give you a Datoship plus RM40,000 per month."

So every year or every generation will be motivated to compete harder. We will learn to compete.

But if we keep lowering the bar for 28 years, or we dont raise the bar at all for 28 years then we will never jump as high as Javier Sotomayor. If we keep giving Proton employees fat RM40,000 salaries and huge profits just for jumping five feet, for 28 long years already, then where is the motivation for Proton (and its very, very high cost component suppliers) to learn to compete? Why in the name of Hang Tuah should they jump higher? Kenapa nak susah-susah sangat. They can still collect full payment by just jumping five feet.

Why should they compete? Even without working as hard or competing as hard as the Korean, Japanese and German car makers the Proton executives and their components suppliers can still earn big money. In Malaysia, they are at the top of the corporate food chain. This is the reason for the failure of Proton - FIVE times already in 28 years.

If we do not remove the protective barriers (excise duties, import taxes, AP regime etc) Proton will never learn to compete.

And here is something else. The picture below (thanks to Star) shows that despite the high prices, imported cars now outsell "Made In Malaysia" cars like Proton. In 2001, Proton and Perodua controlled 80% of the market. 10 years later in 2011 they both controlled only 56% of the market - a whopping 24% drop over 10 years.

This is bad news for Proton. Imported cars are up to date, they incorporate the latest technology and in the world market they are far much cheaper than Proton cars of the same engine capacity. In Singapore even Toyota Vios is cheaper than Proton (says The Star).

The only thing sustaining Proton is the general ignorance of many Malaysians. They dont understand the concept of paying less money for cars - like other people in other countries. It is their ignorance that has revived Proton from death - FIVE times already.

Will continue Part 2.