THE WAY FORWARD
Foreign partnerships can transform, revitalise carmaker in line with the National Automotive Policy agenda
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.