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.

UMNO’s system for choosing leaders must change: Dr Mahathir


April 24, 2016

UMNO’s system for choosing leaders must change: Dr Mahathir

Former Malaysia Prime Minister Mahathir Mohamad speaks to Channel NewsAsia about his citizens’ movement against current Prime Minister Najib Razak and his track record of picking leaders for the country.

by

http://www.channelnewsasia.com/news/asiapacific/umno-s-system-for/2722040.html

Progress made by a citizens’ movement against the Najib Razak administration is “quite good”, former Prime Minister of Malaysia Mahathir Mohamad told Channel NewsAsia. Dr Mahathir, who has been granting interviews to international media as he seeks to ramp up his campaign against the government, said the RM2.6 billion (US$681 million) deposited in Mr Najib’s private accounts was the “straw that broke the camel’s back”, even though the Prime Minister has been cleared of wrongdoing.

Dr Mahathir also spoke candidly when asked if he misjudged the people that he chose to back as successors.

Melissa Goh: Let’s talk about the citizen’ movement now. It’s been more than a month since you led a group made up of opposition leaders, mostly former cabinet ministers as well as civil right activists, and launched the citizens’ declaration. How would you rate the progress so far? Would you say that you have the support of the people?

Dr Mahathir:“I think given a little bit more time, we would achieve a million declaration”: Dr. Mahathir bin Mohamad speaks about the citizen’s movement in Malaysia. MORE: http://bit.ly/1VJ2zFJ

Melissa Goh: Many commentators elsewhere said what is happening in Malaysia now is a “natural” progression of your policies that you put in place when you were Prime Minister of Malaysia. What do you have to say about that?

Dr Mahathir:Were there any protest like you see now? People protesting to have me removed? They didn’t. In the end I removed myself””: Dr. Mahathir bin Mohamad touches on whether the situation in Malaysia is due to his own policies. http://bit.ly/1VJ2zFJ

Melissa Goh: You haven’t had much luck with your previous picks of prime ministers. Was it a case of misjudgement?

Dr Mahathir:  “The system in UMNO for choosing leaders must be changed”: Dr. Mahathir bin Mohamad. http://bit.ly/1VJ2zFJ

Melissa Goh: You resigned as Proton chairman and a week after that, the Malaysian government approved a bailout to help the company pay its debts. Was your departure a condition for the bailout approval?

Dr Mahathir:“They haven’t given”: Dr. Mahathir bin Mohamad talks about whether his departure was a condition for the approval to bail out Proton Cars. http://bit.ly/1VJ2zFJ

 

 

 

Tolls and Taxes, Corruption and what is next (?)


October 13, 2015

ProtonFunding a Man’s Ego

COMMENT: We are being buggered by our government everyday and made to bear the burden of their policy cock-ups, failures, sheer incompetence and blatant corruption. Our car national policy is one classic example. We know that our national car project, conceived by Tun Dr. Mahathir in the 1980s, is a failure, an outcome that was predicted by our economists (like Chee Peng Lim, K.S. Jomo,  Edmund Terence Gomez et.al ) decades ago. Yet we continue to fund this failed project to this day. Why?  Out of deference to Tun Dr. Mahathir bin Mohamad?

Time and time again, Proton had to be supported by taxpayers (although it is now privatised to Syed Mokhtar’s DRB Group). Its R&D programme is being funded by the Federal Government and the national car is insulated from foreign competition by high import duties, meaning that without this high tariff, Proton cannot compete and fund its own R&D. Do we know what R&D is being done at Proton?

Something has gone terribly wrong when we have to burden the Malaysian consumer with taxes and  heavy excise duties of all kinds. Even our privatization policy is a one big mess. It is time for our government to take a hard nosed approach towards all GLCs, and their management should be told that if they failed to perform that the government would shut down their companies. Can you count how many times, Malaysia Airlines and Bank Bumiputra (before it was absorded by CIMB) had to be bailed out by fresh funds from the Treasury? I can’t. –Din Merican

What I Think

jahabarKlang Valley toll rates are up, fuel prices will stay high, the road tax is here to stay, cars remain pricey, so what’s new, Malaysia? Fact is, toll rates will rise every three years or so, according to contract. But the ruling federal government delays it every time there is a general election, and use taxpayers’ money to compensate them. We can’t change the toll contracts and fuel prices are dictated by global prices, but the government can cut road and vehicle taxes. Why are we paying more in taxes when our wallet is already emptied by toll rates and fuel at market prices?