PROTON: The National Albatross


March 30, 2017

PROTON: How long more can Malaysian Taxpayers bear the Burden of this National Albatross

by P. Gunasegaram@www.malaysiakini.com

Proton is a clear case of how a wrong policy – producing our own national car – can cost the consumer hundreds of billions of ringgit over the decades of its implementation. Enough has been wasted with the government already giving out some RM15 billion in grants and the latest loan. If Proton can’t find a foreign partner, it is best to let it simply go under.–P. Gunasegaram

Image result for Mahathir and Proton

Mahathir masih belum terima realiti bahawa Projek PROTON idaman beliau itu gagal

PROTON, both car and company, have been a problem from day one. It should have been resolved three decades ago but has been allowed to snowball to epic proportions. Even the current search for a foreign strategic partner (FSP) appears bogged down.

That’s because till today, in the midst of negotiations to find a FSP, there is an ingrained reluctance to surrender control to bring in the technological expertise, business acumen and international standing to turn Proton around. If this transigence does not evaporate, then Proton will not have a deal.

That prolongs the suffering of Malaysians who since 1985, when the first Proton Saga rolled off the plant in Shah Alam, are paying much higher prices for cars, sometimes two or three times the price in other countries, because of protective barriers. According to my calculations, this could have amounted to as high as RM360 billion that car buyers have sacrificed in duties to the government and subsidies to manufacturers.

I have used 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.

If it was purely a question of business, Proton would have been sorted out a long time ago. But like many things in this country, it became an issue of national and even Malay pride, local capability and capacity, and one man’s plain old-fashioned stubbornness in the face of overwhelming evidence that it could not work.

Image result for Najib Razak and Proton

Najib is afraid to shut down PROTON

Proton, then controlled by sovereign fund Khazanah Nasional Bhd, was about to sign a deal with Germany’s Volkswagen in 2007 when the deal was jettisoned days before the signing by intense lobbying to then Prime Minister Abdullah Ahmad Badawi. Among the lobbyists were said to be then International Trade and Industry Minister Rafidah Aziz and those associated with former Prime Minister Dr Mahathir Mohamad, whose “brainchild” Proton is.

Then as now, Proton’s problems are well-known — lack of technical knowhow to produce reliable vehicles cheaply and insufficient production to benefit from economies of scale and develop new, viable models – two factors which feed off each other to make things progressively worse.

The only thing which helped to produce profit in the past were high tariff barriers and rebadged vehicles from manufacturers such as Mitsubishi in the early years and Honda in the later years with little more than assembly involved.

What has Proton to offer? Mainly two things. One, excess production capacity which means there is little lead time to production. Two, access to the 10-member 623-million-people Asean market whose member nations have largely dismantled discriminatory tax barriers for cars among themselves – except for Malaysia which imposes a thinly disguised discriminatory excise duty based on “local” content.

The solution is simple and straightforward. Give a competent foreign partner majority stake and control of the manufacturing operations at a reasonable price. Try and maintain control of domestic sales and marketing. That is as much as one can hope for – the operation is losing money by the bucketloads and the outlook is ominous to say the least.

Image result for Perodua vs Proton

 The Clear Winner is Produa, thanks to Daihatsu Technology combined with savvy sales and marketing owned by local interests

Failed Proton’s arch rival Perodua, also a national car project, is succeeding. Why? Perodua has access to technology from Daihatsu which in turn is owned by Toyota – its cars are therefore much more reliable than Proton’s. Not many people know this but Perodua’s manufacturing is majority foreign-owned while sales and marketing is majority owned by local interests.

But even now, when it has its back against the wall and some RM1.5 billion in support loans from the federal government to keep it going meantime, Proton is balking.

Geely pulls out

According to an article in the South China Morning Post, China’s successful home-grown auto manufacturer Geely Automobile Holdings has withdrawn from a bid to acquire a controlling stake. It quoted Geely’s President An Conghui.

Image result for Geely Automobile Holdings

Geely Chairman  Billionaire Li Shufu

An did not elaborate on the reasons for the decision, but Li Shufu, its chairperson, had previously indicated the Malaysian firm had been “uncertain” about what it wanted from an overseas partner, in an interview with Bloomberg earlier this month, the report said.

Why the uncertainty?

However, listed DRB-Hicom, Proton’s shareholder and eventually majority owned by prominent businessman Syed Mokhtar AlBukhary, denied Friday that Geely has pulled out. Proton has reportedly lost RM2.5 billion since DRB-Hicom took it over in 2012.

That takeover represents a series of musical chairs when different companies were left holding the parcel as this article I wrote for The Star in 2012 explains. It passed from the government’s Heavy Industries Corp of Malaysia or Hicom to Diversified Resources Bhd or DRB, later renamed DRB-Hicom, to national oil corporation Petronas when DRB-Hicom was rescued and then to Khazanah Nasional which sold it back to DRB-Hicom, now controlled by Syed Mokhtar. DRB founder, Yahya Ahmad who was well-regarded by Mahathir – was killed in a helicopter crash in 1997 before Proton was sold to Petronas.

Geely, the owner of the Swedish Volvo brand, was considered the favourite to acquire a controlling stake in Proton although Europe’s second-largest carmaker Groupe PSA, which owns the Citroen, Peugeot, and DS brands was still in the running.

If indeed Geely has pulled out, and it seems rather likely it has, that will leave Groupe PSA as the sole contender for Proton, giving Proton very little room to bargain.

There is no choice but for Proton to get an FSP. That should have been done 10 years ago. As time passes on, there is less and less reason for companies to set up manufacturing here. They can simply go to Thailand which is already a manufacturing hub. Or Indonesia.

Once Proton is taken over, then all that’s left to do is to set a timetable to dismantle the high tariffs for cars and put everyone on a level-playing field. And finally enable Malaysians to benefit from reasonable car prices. Presumably, with the FSP, Proton will have no more need for protection because it will have scale and technological expertise, becoming a regional manufacturer for the FSP.

Proton is a clear case of how a wrong policy – producing our own national car – can cost the consumer hundreds of billions of ringgit over the decades of its implementation. Enough has been wasted with the government already giving out some RM15 billion in grants and the latest loan. If Proton can’t find a foreign partner, it is best to let it simply go under.

Over the decades, Malaysians have paid hundreds of billions more ringgit for cars. Our calculations indicate RM360 billion. How much more do we have to pay before this long, sorry, sad saga is finally brought to an end?


P GUNASEGARAM says: “The government never pays the price of protecting local industry, the consumer always does.” E-mail: t.p.guna@gmail.com.

9 thoughts on “PROTON: The National Albatross

  1. Proton was and still is meant to be a show case of the Malaysian Malays coming of age as a race worthy of admiration and respect from other races, Malaysian or overseas. It was never a wholly Malaysian project. Its success would have boosted the self-confidence and pride of the race, a kind of Ketuanan Technologi Melayu.

    To let it fold would have been an admission of failure of the Malays and not just of Malaysia. An albatross that cannot be killed. Even to sell it is shameful enough.

  2. If a Chinese car company won’t even touch Proton, something must be awfully wrong with Proton. It’s best to just shut down Proton and sell off its asset and maybe recover cents off the dollar for the huge investment so far.

    Proton came into being about the same time as Kia and Hyundai . Today these two Korean marques are all over the globe and had even become the SUV choice of ISIS. While Potomg is still struggling to make an affordable and safe car despite decades of protective tariff on imports.

  3. Actually, the logic has gotten simpler why Proton has no future on its own and fact is no BN leaders nor pro- Proton advocate here says it is condemnation of future not just Proton’s.

    There are only 3 segment of auto that is growing significantly globally, in major markets – SUV, trucks and electric vehicles – proton has no competitive product in all three and cannot develop it on its own. The trend can only continue because of low oil and advances especially in EV and fuel-efficient tech. Already EV is affordable to mass premium market. If a new generation of battery or advances in autonomous driving is good enough, Proton would collapse within months and worth just scraps.

  4. PROTON: How long more can Malaysian Taxpayers bear the Burden of this National Albatross

    It may continue as long as the policy continues to be to bailout the decisions of the inefficient resulting in billions of losses. It may be a perception that it may be a policy to ensure that those involved in industries will never be able to achieve the BERDIKARI STATUS!!!

  5. Subject: [New post] PROTON: The National Albatross

    dinobeano posted: “March 30, 2017 PROTON: How long more can Malaysian Taxpayers bear the Burden of this National Albatross by P. Gunasegaram@www.malaysiakini.com Proton is a clear case of how a wrong policy – producing our own national car – can cost the consumer hundreds o”

  6. We always forget about that little man who puts his little cross on that little paper with the help of that little pen in the security of that little room and then put it in that little black box.( Apologies to Sir W. Churchill.) Above all what is valued by that little man is a little intergrity- doing that little right thing when no little one is looking. Doings by the establishment is protected by the law and the little man who has surrendered his little power in that little room has no money to employ lawyers to take on the state. So please help that little man because he is the owner of that little cross.

  7. Failure is not an issue compare to a continue leaking system only to enrich some well connected tuan in the name of national or race pride. A failed state always precedes with failed policy by corrupt bastards.

    • Bailouts of ‘you know who’ is a common culture in developed countries as can be evidenced from the past financial bailouts in USA and other developed countries. But on the other hand it should also be remembered the benefits produced by the industry. What may be wrong may be the policy decisions and not that whether the country should have or not have a motor industry. Motor industry could be the mother which has produced many eggs in the form of hundreds of other industries and tens of thousands of jobs both directly and indirectly not to mention the financial institutions which provide loans and insurance coverage services.
      PROJECTS SHOULD NOT BE LOOKED UPON WITH BLINKERS ON.
      This does not mean that I support some of the decisions made.

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