For­eign part­ner­ships can trans­form, re­vi­talise car­maker in line with the Na­tional Au­to­mo­tive Pol­icy agenda

New Straits Times - - Opinion -

AF­TER more than 30 years in ex­is­tence, like it or not, Perusa­haan Oto­mo­bil Na­sional Bhd (Pro­ton) has to be trans­formed in an ag­gres­sive way.

This is not just be­cause of the fact that this is part of the con­di­tions put forth by the gov­ern­ment for grant­ing Pro­ton RM1.5 bil­lion in soft loans last year, but also in the big­ger scheme of things of the highly com­pet­i­tive na­ture of the in­dus­try world­wide.

And, clearly, many global au­to­mo­tive play­ers in this ev­er­chal­leng­ing in­dus­try have no choice but to em­ploy a time-tested strat­egy not just to sur­vive, but also strive and thrive mov­ing for­ward — that is, through con­sol­i­da­tion.

Pro­ton, the na­tional car­maker, has had its ups and downs in its per­for­mance since its es­tab­lish­ment in 1983, es­pe­cially in terms of its pro­duc­tion, sales vol­ume and mar­ket share.

At its peak, Pro­ton con­trolled 64 per cent of the mar­ket share in Malaysia with a sales vol­ume of 176,100 — that was in 1996 with ex­port mar­kets in more than 50 coun­tries, such as Ire­land, Aus­tralia, New Zealand and Sri Lanka. In 1993, the pro­duc­tion of Pro­ton cars had reached a high-time level of 500,000. Such data was un­doubt­edly im­pres­sive.

But, over the years, the trend ap­pears to be on a down­ward tra­jec­tory for Pro­ton.

In 2006, for in­stance, Perusa­haan Oto­mo­bil Ke­dua (Pero­dua), the sec­ond na­tional car­maker, which be­gan op­er­a­tions in 1993, had sur­passed Pro­ton in the game.

Even the non-na­tional cars, es­pe­cially Honda and Toy­ota, have be­come stronger in the Malaysian mar­ket.

From sales of pas­sen­ger cars of 166,118 in 2005, the num­ber had dropped by 30 per cent to 115,538 in 2006 for Pro­ton.

In con­trast, Pero­dua had its sales vol­ume in­crease by 14 per cent to 152,733 in 2006, com­pared with 134,170 in 2005. Out of the 73.41 per cent of the to­tal in­dus­try mar­ket share for na­tional cars in 2006, 31.62 per cent was from Pro­ton, whereas the other 41.79 per cent was con­trolled by Pero­dua.

Even in terms of pro­duc­tion of cars in 2006, Pero­dua sur­passed Pro­ton for the first time since its es­tab­lish­ment, with a pro­duc­tion of 152,733 units, com­pared with Pro­ton’s 115,538 units. And the trend con­tin­ues. As of last year, Pro­ton sales vol­ume was at 72,290 units, with Pero­dua record­ing a sales vol­ume of 207,110 units. Also in 2016, while Pero­dua’s mar­ket share was at 40 per cent, Pro­ton reg­is­tered at only 14 per cent.

This has af­fected the fi­nan­cial per­for­mance of DRB-Hi­com Bhd, the com­pany which now owns 100 per cent of Pro­ton, or Pro­ton Hold­ings.

DRB-Hi­com’s net losses had widened to RM478.9 mil­lion in the fi­nan­cial year end­ing March

THURS­DAY, MARCH 30, 2017 31, 2017, from RM15.8 mil­lion a year ear­lier.

Even its rev­enue had con­sis­tently dropped from RM7.7 bil­lion in 2013 to 4.8 bil­lion in the fi­nan­cial year of 2016. Adding in­sult to in­jury would be Pro­ton’s whol­ly­owned sub­sidiary, Lo­tus Group In­ter­na­tional Ltd, which had con­tin­u­ously been in the red, reg­is­ter­ing a pre-tax loss of RM191 mil­lion last year. It is im­por­tant to note that since 2012, DRB-Hi­com had laid down a five-year re­struc­tur­ing plan for Pro­ton, with an es­ti­mated in­vest­ment of more than US$1 bil­lion (RM4.42 bil­lion). Still, re­viv­ing Pro­ton ap­pears to be chal­leng­ing.

With greater lib­er­al­i­sa­tion of the in­dus­try now and in the fu­ture, and in the in­ter­est of the sur­vival of Malaysia’s au­to­mo­tive ecosys­tem as a whole, it may not be sus­tain­able for the gov­ern­ment to con­tin­u­ously pro­tect and help Pro­ton like it did in the past. Nei­ther will restrict­ing com­pe­ti­tion from for­eign car com­pa­nies to pen­e­trate the Malaysian mar­ket. These two strate­gies may have been nec­es­sary in the past as time was needed for Pro­ton to grow and de­velop. But, now, it has reached the point where Pro­ton needs to stand on its own two feet and march into the brave new world with a bet­ter prod­uct, brand, ef­fi­cient pro­duc­tion and com­pet­i­tive pric­ing.

Hence­forth, mov­ing for­ward, hav­ing a for­eign strate­gic part­ner­ship (FSP) for Pro­ton ap­pears to be the best strat­egy. I con­tend that the RM1.5 bil­lion in soft loans is a good start, as this in­volves ad­dress­ing some “legacy is­sues” af­flict­ing Pro­ton’s ven­dors’ fi­nan­cial prob­lems as a re­sult of the un­met sales vol­ume prior to the takeover of Pro­ton by DRBHi­com.

It is re­ported that Pro­ton has de­vel­oped about 400 ven­dors and sub-ven­dors, plus more than 350 sales and ser­vices out­lets. Here we are talk­ing about 300,000 peo­ple who are at risk of los­ing their jobs if noth­ing sub­stan­tial is done to re­vamp Pro­ton.

In­deed, this read­ily avail­able car ecosys­tem and in­fra­struc­ture has ac­tu­ally made Pro­ton very at­trac­tive to fu­ture FSPs, not to men­tion the Tan­jung Malim and Shah Alam assem­bly plants, a com­bined ca­pac­ity for pro­duc­tion which can go up to 400,000

In the in­ter­est of the sur­vival of Malaysia’s au­to­mo­tive ecosys­tem, it may not be sus­tain­able for the gov­ern­ment to con­tin­u­ously pro­tect and help Pro­ton like it did in the past.

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