Proton Ambitions

Malaysia

Economic News

22 Jul 2010
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Malaysia's leading car manufacturer is looking to reinvent itself in efforts to stave off both international and domestic competition.



Proton announced plans to expand its product range and seek out new partners in Asia, in efforts to obtain deeper market penetration in the region.



Over the past two years, Proton, one of Malaysia's leading government-linked companies, has had more than its fair share of problems. Faced with sales at home being eroded by imports and its domestic rival Perodua, in which Toyota subsidiary Daihatsu has the majority stake, Proton's slice of the market to fall to under 40%.



Proton has also lost out overseas as its export sales have come under pressure from both Malaysian and international manufacturers. Now it has to plan for the future, as the government is set to ease protective tariffs on imported vehicles.



In January, German giant Volkswagen abandoned plans to become an equity partner in Proton as a result of the Malaysian producer's refusal to hand over management control, an all too common stumbling block in many a joint venture.



However, it appears things are about to change. In his opening address at the Kuala Lumpur International Automotive Conference on May 23, Deputy Prime Minister Najib Razak flagged new efforts to revitalise Proton. He further stated that Malaysia's domestic vehicle market was not strong enough to sustain the national automotive industry and the country's carmakers needed to engage in joint economies of scale with the international automotive world through a process of specialisation and interchange.



"We leave it to the national car companies to choose the appropriate partners," Razak said. "The partner must bring value to the national car, be a successful automotive manufacturer and have the right kind of technologies, and be able to open doors for Proton in markets abroad."



While saying that the government would consider giving up some of its equity in Proton, the deputy prime minister asserted that the government's controlling interest in the company will be maintained.



"The partnership should not lead to undermining the national car," he said. "Whatever it is, we have to be in control of the car and of the manufacturing."



Kamarulzaman Darus, Proton's manufacturing director, was another to attend the automotive conference, telling reporters that the company needed to look beyond Malaysia, where the market was already saturated.



"Therefore, going outside is the key," he said. "China, India and ASEAN would be our future key markets. We are looking at various types of alliances that can bring value to us while not sacrificing our own values."



Later the same day, Proton revealed that it had opened discussions with Chinese manufacturer Chery on the possibility of assembling and distributing the Proton and Chery ranges in China, Malaysia and elsewhere in south-east Asia. A feasibility study on the proposal is due to be completed in three months.



With the Chinese market tipped to be one of the world's fastest growing in the coming years, with a 54% jump in passenger vehicle sales in 2005 backing the trend, combined with the fact that car ownership is still just 1%, the potential for expansion is vast. It is this potential that Proton hopes to tap into.



There was also an announcement that Lotus Engineering (Malaysia) Sdn Bhd, one of the Proton group of companies, was looking into a proposal to design and sell low-priced vehicles in China with Chinese firm Jinhua Youngman Automobile Group.



Then on May 24, Proton made public plans to enter the sports utility and multipurpose vehicle market, with Kamarulzaman saying that they were looking to find a strategic partner to develop the project.



In mid-May, Proton also set out to challenge Perodua abroad, announcing that it would enter the Saudi Arabian market, with a mid range sedan due to hit showrooms in September.



However, Proton has a long way to go before it gets into top gear. In April, its domestic sales share slipped even further behind Perodua, from 9290 units to 13,574. Both companies will also have to contend with the forthcoming lifting of restrictions on imports, set for 2011. The government is also encouraging foreign manufacturers to base themselves in Malaysia. Accordingly, International Trade and Industry Minister Rafidah Aziz told delegates at a trade seminar on May 11 that the current requirement of 80% of cars assembled by foreign firms destined for export, a measure to protect Proton and Perodua, would be lifted in 2010.



Despite all this, the company is looking well down the road. In March, long before the flurry of announcements, Proton issued a statement to the stock exchange declaring its intent to lift its domestic market share to 45.8% in its 2007 financial year, and for exports to account for 8.6% of sales. In the 2006 financial year, export sales contributed 5.2% of revenue and expectations are for overall revenue to rise by 12%.



While Proton still has to live up to its bold projections, and to achieve its proposed new deals, the company does appear to be finding its way at long last.

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