Why any version of Proton 2.0 will fail

QUESTION TIME | It does not matter if it is manufacturing electric cars or energy efficient vehicles (EEVs), or intelligent cars which drive themselves or a combination of them; any other national car project will fail with further massive losses to the public which eventually underwrites the profits or the losses.

It benefits only the egotistical aspirations of one man - Prime Minister Dr Mahathir Mohamad and the pockets of one of his cronies, Syed Mokhtar Al-Bukhary, who owns a majority 50.1% in Proton Holdings through DRB-Hicom, the other 49.9% owned by Geely of China.

Interestingly, DRB-Hicom recently sold its entire stake in rubbish disposal firm Alam Flora to a related company, Syed Mokhtar-controlled Malakoff for RM945 million cash, which it said will be used to retire Proton debt and to invest in the development of new models. Could one of the new models be an EEV? Time will tell.

The car industry simply does not have the scale and the technological base to compete in the international markets and is a burden to Malaysia and its people. Therefore, it should be slowly wound down as Australia did. It was not competitive in 1983 when it was first mooted and it is not competitive now. What keeps it alive is tariff protection.

I wrote a feature article on Proton way back in 1983 for The Star (it was different newspaper then) when the idea was first mooted before production started in 1985. There was substantial opposition to the project and in the article, I quoted two individuals. First was the late and respected associate professor Chee Peng Lim and second, Jomo Kwame Sundaram, currently a member of the council of elders. Both were from Universiti Malaya and were known to be forthright in their views.

Mahathir, who was prime minister then too, had then maintained that the government considered the capacity to produce vehicles a necessary component of the industrial structure. However Chee, then associate professor at Universiti Malaya, directly contradicted Mahathir saying that undue emphasis should not be placed on heavy industries as there were insufficient supporting industries.

“Unless you have a wide industrial base, too rapid development of certain heavy industries will result in a lopsided structure,” he said presciently 35 years ago, adding that Switzerland, an industrialised country, did not have a car industry. It still doesn’t. Mahathir’s industrialisation policy was a great flop.

Jomo called for an open debate then. “Let’s bring out the facts and figures. Then we can have an open forum and the subject can be debated.” That never happened, of course, and probably will not happen now because a new Malaysia is somewhat stymied in some respects. And those who opposed the project got short shrift.

Subsidy of up to RM360 bil

To understand why it won’t work, we need to understand what Mahathir’s concept of a Malaysian car is. He is not talking about a technology partnership, he is talking about a Malaysian car - developed eventually by Malaysians to be competitive worldwide.

For 35 years, Proton tried and could not do it because it produced lousy, substandard cars when it tried to go on its own without technology partners. These cars could not compete internationally even when prices were subsidised by domestic sales because of poor quality. They sold locally only because of massive tariff protection.

They never got scale because the technology needed to make good cars was non-existent. It’s not about race or bumiputera privileges - nowhere within Malaysia did we have anything near cutting-edge technology when it came to cars. We still don’t and in 35 years, the market is a helluva lot more competitive.

Perodua, the second major national car project, succeeded financially because they produced quality cars with a good technology partner throughout, Daihatsu of Japan. But this is basically a manufacturing operation for Daihatsu, which enjoys tariff protection and access to the Malaysian market.

It is of rather dubious benefit to Malaysia as a whole because Malaysia could have imported similar cars much more cheaply from anywhere in the world and offered its populace lower prices and better quality, and safer products.

Instead Mahathir basically stuffed inefficient, unreliable and even unsafe cars down the throats of Malaysians, who with a terribly inefficient public transport system, then spent more than they could afford on cars; their most conspicuous consumption after houses. Mahathir caused needless hardship to millions of Malaysians, who could have subsidised the national car industry to the tune of at least RM360 billion over the years - and that’s no exaggeration.

This is based on estimated sales of some 12 million vehicles between 1985 and 2016 of which some four million vehicles sold were Protons. I have estimated, conservatively, that the average price per vehicle was RM30,000 higher because of protective barriers. Multiply this by 12 million vehicles for RM360 billion. You may disagree with the exact figure but there can be little doubt that the order of magnitude is in the hundreds of billions of ringgit.

For instance, take the 2018 prices of two vehicles in the US (where taxes on cars are low or zero) and compare those to Malaysia. The first is a Honda Civic, priced at RM75,760 in the US but RM116,733 here for a similar model. This is RM40,973 or 54% higher. For a BMW 530e, the respective prices are RM210,600 and RM343,000 - RM132,400 or 63% higher! And this in a country which has a per capita income one-fifth of that of the US.

If we use the RM360 billion burden Malaysians have borne, Proton and the national car projects have already cost the country and the rakyat 7.2 times the likely maximum loss at 1MDB estimated at RM50 billion. Is that not enough reason to nix this crazy idea?

Ministers, why no guts?

But for that we need ministers who have guts, who must rise up and voice the dissatisfaction they have over the revival of yet another national car project. But instead, there is defence of Mahathir’s plan. How sad! How dangerous!

Deputy Trade and Industry Minister Ong Kian Ming said the new project won’t be reboot of Proton but will instead go in the direction of energy efficient vehicles. Pray tell us does that mean we are going into the manufacture of EEVs? Does that mean EEVs will become more expensive?

Of course they will, using first the infancy stage argument and assuring us they will be competitive later, for the imposition of punitive tariffs on EEVs from overseas. When after 35 years we could not manufacture conventional cars more efficiently, how can we possibly manufacture EEVs more efficiently now or ever? What do we have now that we did not have earlier?

Instead of adding fuel to Mahathir’s fire of going back to some version of Proton, our ministers, so brave and full of gumption before GE14, are now telling the new emperor he has clothes on when he is absolutely naked when it comes to Proton and a new car project.

Why no guts, ministers? Especially when many of you had so strongly criticised Proton before? Do you honestly think that Mahathir will miraculously restore a rotten car industry to profitability or do you not care that billions more are going to be poured into a wasteful project, which has already wasted over seven times the wastage at 1MDB? Don’t you have an obligation to the country to stop this project?

Remember it’s not the project cost that counts, it’s the money that Malaysians pay extra every day when they purchase a car, money that goes to subsidise the profit and bear the losses of our national car industry.

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P GUNASEGARAM says that engaging in political subterfuge makes many politicians stupid… and dumb. E-mail: t.p.guna@gmail.com. -Mkini