A tale of two manufacturers — Perodua and Proton

ELEVEN years ago, in April 2006, Proton Holdings Bhd, manufacturer of the national car marque Proton, suffered a major setback when the sales of Perusahaan Otomobil Kedua Sdn Bhd, or Perodua, overtook it for the first time.

What was once its little sibling set up to manufacture small cars, Perodua had grown to outshine its bigger, more established brother.

It was the humble Myvi which gave Perodua an edge.

According to figures compiled by the Malaysian Automotive Association that year, Perodua beat Proton by selling 13,574 cars in April, gaining a 44 per cent market share against Proton’s 30.35 per cent market share of 9,290 cars.

Datuk Seri Najib Razak, who was deputy prime minister at the time, said the development should “spur Proton to do even better in the future”.

“We like this sense of competing with one another in a friendly manner. I think that’s good for the consumers,” he was reported as saying.

At the same event, Najib was quoted as saying that both manufacturers needed to improve their efforts to crack the export market, which they had failed to penetrate.

“It is obvious that they need to go abroad.

“The local market is the biggest passenger market in Asean, but it is not enough for us to sustain,” he said in 2006.

More than a decade later, both still have only marginal success in cracking the export market.

As a result, both ended up vying for the limited pie that is the Malaysian automotive market.

Proton eventually became the loster.

What caused Proton’s downfall?

How did it lose its No. 1 position to Perodua?

Why has its sales suffered drastically?

There are myriad reasons. But chief among them was Proton’s inability to access deeper technological and financial resources.

Over the years, a number of possible tie-ups were mooted for Proton.

For a while, in 2006, a Proton-VW tie up involving either a cooperation or equity stake was said to be in the works.

Over the years, Proton had been said to have talked with PSA Peugeot Citroen of France, as well as GM.

However, none of them came to fruition for reasons unknown.

The delay is what cost Proton its market lead.

The modern automobile industry is a highly-competitive arena, which is tremendously capital intensive. It takes tens, if not hundreds, of millions of dollars to develop just a single model.

In this environment, strategic partnerships are a common feature. The world has seen a long list of automotive alliances. In recent years, examples include Renault-Nissan, Mazda-Fiat, Hyundai-Kia and Citroen-Peugeot.

With just the small Malaysian market as its playground, and limited research and development funds, Proton continued to flounder. It couldn’t move forward.

Its model range suffered. Perodua brought in increasingly fuel efficient cars with good levels of quality, which was made possible through its tie-up with Toyota Motor Corp, which opened its doors to global levels of research and development, as well as economies of scale.

Malaysian Automotive Institute chief executive officer Madani Sahari alluded to this in an interview with the New Straits Times last year, referring to Perodua’s highly successful tie-up with Toyota’s unit Daihatsu, and how Proton should “pull a Perodua”.

“The equity distribution between Perodua and Daihatsu at both holding and manufacturing levels is a good case study,” he said.

“The fair distribution created a lot of trust and teamwork between the two entities, resulting in the market performance we’ve seen from Perodua for the past few years,” he added.

He said Proton, which is a significantly smaller company, should find a partner with capabilities beyond basic technical stewardship, which would allow it to grow together and share resources, such as research and design, platforms, and technology, to create a leaner and more profitable entity.

“Proton will not lose its identity. As in many alliances mentioned, all these brands co-exist. Each brand has its own strength and attraction viewed from customers’ perspective,” he added.

As the brouhaha surrounding Geely’s purchase of Proton dies down, Proton’s executives and engineers may soon wake up to find new tools at their disposal.

There is nothing concrete yet, but Geely’s interest in Proton may give the latter access to opportunities in the form of platforms, engines and various automobile technologies, which the national car maker can use to its advantage.

With economies of scale as well as Volvo-derived technology from Geely, Proton may find itself well-equipped to compete in the local market and against Perodua as well as big names like Honda and Toyota, giving Malaysians better and improved model choices.

Finally, Geely stated that it hoped to use Proton as a beachhead to expand into Southeast Asia. This will be made possible by taking advantage of the Asean Free Trade Area, which has reduced or eliminated tariffs on automobiles in the region for manufacturers like Proton.

This may be a springboard for Proton to set out to do what it should have done a long time ago and that is to grow beyond its home soil, and conquer markets in the bigger space that is Southeast Asia, and perhaps one day, enjoy good sales globally.