The Future of Proton

//Reasearch paper, written about one year ago on Malaysia's very own car: Proton.

Overview
When I first arrived to Malaysia I saw a lot of people driving the cheap Proton with pride. Now I see the same people driving the local car because they must. And I see no pride anymore.

Since I travel a lot by taxi, I decided to do a mini survey and ask the drivers what they thought about the local car. My question was simple: “What do you think of Proton”. The answers were mostly the same; Proton is “rubbish”. Some other complaints were bad quality, too much plastic, unsafe, too cheap (to be any good), and one even said that compared to Volvo (Swedish car), Proton is “nothing”.

Naturally I didn’t use only this information for my research, but it gave me an interesting perspective about the “people’s car”. My objective with this research was to learn more about Proton and I based my research on three questions I wanted answered:

1. Is Proton a good car?
2. Why is Proton so dominant in the domestic car market?
3. Can Proton compete with the giants in the car industry?

I knew the company had been in difficulties for a while, and things weren’t getting better, so I decided to call the research simply “The Future of Proton”. To find information about the matter I surfed on the waves of the Internet and visited numerous web sites, read news-papers and car magazines.

Introduction
Proton was incorporated on 16th January, 1985 under the name Auto Elegance Sdn. Bhd., and is owned by EON (Edaran Otomobil Nasional Berhad.

Part of the “The National Car Project”, the company’s objective was to produce cars, assembled and sold in Malaysia. On the 4th November, 1993 Auto Elegance Sdn. Bhd became Usahasama Proton DRB Sdn. Bhd.

Proton’s first model Saga was launched in July 9, 1985 by ex Prime Minister, Dato' Seri Dr. Mahathir Mohamad who is now a company advisor.

So, is Proton a good car?
Well, since EON owns about 80 percent of British Lotus and cooperates with Mitsubishi – Proton would theoretically be a very good car. But things aren’t what they ought to be and the average Proton isn’t very good.

After 20 years in the business, Proton is uncompetitive in both international and domestic market regarding quality, safety and after-sales support.

The market
The authorities has successfullycleared the road for the local car and swept aside all of Proton’s competition by introducing heavy taxes and tariffs on imported cars. Taxes between 140% - 300% make sure Malaysian’s buy “their car”. EON is use to sell 6 Protons out of every new 10 cars sold in Malaysia.

The only real competitor is Perodua but since it’s also a company controlled by the government, it can’t count as competition. Perodua was thought as a slightly more “posh” alternative to Proton and was supposed to please customers; however the both car brands have ended up cannibalizing on each other.

Even though import taxes are high, foreign cars are common in Malaysia. Brands like Toyota, Nissan, Honda and Ford, and the more exclusive brands such as Mercedes-Benz, Porsche and BMW are foreign cars in the domestic market, doing relatively well.

Nevertheless, the high import costs have come under fire and under the ASEAN Free Trade Agreement (AFTA) Malaysia must reduce taxes and tariffs on cars imported from other ASEAN nations to 0% - 5% by 2005. Because of this, both Proton and Perodua is expected sell less.

The Minister of International Trade and Industry Rafidah Aziz said that’s likely that excise taxes will rise, to counterpart loss of revenue. But the excise duty is strictly a tax meant for products produced locally and therefore not applicable for foreign manufactured products.

Furthermore, Malaysia also needs to open its market under the WTO (World Trade Organization). Participating countries are required to eliminate unjust trading practices and Malaysia is therefore required to get rid of a number of procedures that are considered unfair trading practices.

Analyzing the sales (Proton under the scope)
During the 1990’s the Proton sold an average of 105,000 cars a year. In 1991, they estimated the sales to 194,654 cars and in 1997 that value was estimated to 404,869 cars. In 1997, Malaysia had the largest new car market in ASEAN, but in 1998 the sales fell to 163,852 cars, because of the Asian economic crisis. Proton and Perodua had together 80% of the market.

The Malaysian Automotive Association (MAA) reported for 2003 a total industry volume (TIV) of 405,010 units which is compared to 434,954 units sold in 2002, a decrease of 6.9 percent. Total sales of passenger cars fell to 319,847 units from 359,934 units in 2002. The MAA also forecasted that TIV will rise in 2004 and accordingly EON’s chairman stated in the Annual Report for 2003 that:

“…Proton car sales are therefore, expected to grow in tandem with the improving economy as well as the anticipated roll-out of new models by PROTON.”

In 2003 the sales of domestic brands fell 17.3 percent to 271,710 units from 328,638 units in 2002, whilst the sales of foreign cars increased by 53.8 percent to 48,137 units. Proton’s sales dropped 27.5 percent to 155,420 units from 214,373 units in 2002.

Can Proton keep up?
Proton isn’t producing enough to keep up with demand and new models usually behind the competitors in safety, technology and quality. The latest Gen-2 (Generation Two) doesn’t seem to be an exception. Following quote is taken from Catcha forums, posted by “al bundy30”:

“…even the latest Gen-2 is far behind the competitors in terms of technology. There is no variable valve timing and looks like there won't be any adaptive automatic gearbox not too mention airbags, traction control and electronic brake distribution.”

Proton though is relying on Gen-2 and expects it to sell; they increased its production from 3,000 cars a month to 6,000. Proton has created a manufacturing plant called Tanjong Malim (known as Proton city) which will produce 100,000 cars initially, but can manufacture about a million a year. Gen-2 technical details: minimum price RM 52,000, maximum speed 180 km/h, 1.6GLI engine, 5 passenger seating and 4-door.

Conclusively
Picture a situation without any imports taxes and tariffs: an invasion of foreign cars. Would Proton (and Perodua) survive such a situation? Who knows. Even thou both companies are backed by foreign forces, it's the final consumers who have the last saying. In the end, it's they who decide Proton's future.

Iironically, customers are forced to overpay an amount of RM 15,000 when buying their “own car”. Main reasons for this are because high royalties are paid to Mitsubishi, and costly and ineffective production. Actually, Proton is relatively more expensive than foreign cars, without import taxes. So, what point is there in having a business that doesn’t profit?

What needs to be done, if Proton is meant as a meaningful business, Proton must produce quality cars. Also, the people’s demands must be satisfied. The cars must be on the same level as the competition, if not better. But it really doesn’t matter what Proton does – it’s the people that have to look on the local car with other eyes.

Furthermore, Perodua's future must be decided. As it’s mainly a compliment to Proton it won’t fill any function if the market opens to foreign cars, the most rational is to privatize Perodua and make it a competitor instead of a compliment.

Whatever happens in the future the Malaysian people can boast about being the only Muslim nation in the world that produce (or has produced) their own car’s…