It's a Catch 22 for Proton: Hidup segan, mati tak mahu.
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Media Statement
by Ronniu Liew Thian Khiew
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(Petaling Jaya, Thursday): In defending Proton and its CEO Tengku Mahaleel Tengku Ariff in a media conference on Tuesday, Proton's adviser Dr Mahathir Mohamad has also taken the occasion to attack Rafidah Aziz and the Malaysian Government.

The former prime minister once again expressed his unhappiness over high number of Approved Permits (APs) being issued every year.

Both Mahaleel and Mahathir have earlier claimed that importing cheap Korean cars using APs have affected the sales of Proton cars badly. But the Prime Minister Abdullah Ahamd Badawi who refused to reveal details of APs holders claimed that there were many factors for the decline of Proton cars, and one of them was Proton has not become a truly competitive car maker after all these years of protection.

On Tuesday, Dr Mahathir revealed that out of the 67,000 APs issued in 2004, 54,400 were given to 20 Bumiputras' companies and 12,600 APs were given to another 82 Bumiputras' companies (www.malaysia.tv). He called it "irregularities" and claimed that many Bumiputras were unhappy over such irregularities. One wonders whether he cares for the feelings of Non- Bumiputras who were not given a single AP.

He said many of these APs were sold for clean profits as much as RM30, 000 each. The Government must have lost at least RM2 billion in revenue on imported cars in 2004 alone.

Dr Mahathir is right on this point. A Harrier owner may want to know that out of the RM160, 000 he or she paid for buying one, some RM45, 000 went straight to the pocket of the AP holder. The landed price of a Harrier is "usually" around RM30, 000. Only about RM25, 000 was paid as tax to the Government.

Dr Mahathir also questioned why the Government has not put a stop to Korean cars which were imported to Malaysia with an under-declared value- at a cost "lower than the price of raw materials".

He was also unhappy with Rafidah for endorsing the 40% local content benchmark for national car status during AFTA negotiations without consulting the Prime Minister and the Cabinet.

He claimed that such benchmark has put Proton in a disadvantaged position compared to other national cars with a much lower local content. He questioned why Naza Ria was classified as national car as the MPV has only 18% local content at the time it was launched by him.

The Minister of International Trade and Industry Rafidah Aziz has chosen not to respond to Dr Mahathir after Wednesday's Cabinet meeting. This has given an impression to the Malaysian public that what the former PM said about her must have some truths in it. We were now told that Abdullah has instructed Rafidah to reply in writing since the issues raised were targeting at her ministry. She must not keep Malaysians waiting for too long.

But the Proton saga is really a failure of Dr Mahathir. As a prime minister, he has practically making full use of whatever national resources he could gather ( not to mention artificial tariffs and regulations) to give his pet project-Proton- an unfair advantage for some twenty years. He should not blame anybody but himself.

DAP and many economists have warned him of the grave consequences of pushing ahead with such an unviable project from day one. We know the national car project is doomed to fail simply because of serious lack of economy of scale. But Dr Mahathir was too egoistic to listen to the opposition. Today, he is forcing himself to step out of retirement to fight for the survival of his last pet project. Almost every other projects mooted by Mahathir failed miserably. Perwaja, Bakun Dam, Cyberjaya, Bollywood...even the Twin Towers (now second tallest in the world) are half empty after so many years.

Dr Mahathir was not telling the truth when he claimed that Proton is still making profit. Those who have read Tengku Mahaleel’s outburst in a special interview with Oriental Daily News will know that. He was also not totally honest on his claim that there were many international buyers interested in buying Proton.

No one would be interested to buy Proton as long as Dr Mahathir refuses to sell the controlling stake to foreigners. It does not make any business sense for any international car maker to own a smaller share in any "struggling" brand in a saturated market.

Volkswagen last year agreed a partnership deal with Proton that aimed to boost its presence in Southeast Asian markets. The deal did not involve taking equity stakes.

In March, Volkswagen said it would start assembling its Passat mid-sized model in Malaysia this year with Proton and add the subcompact Fox model in 2006.

In an interview in early June with German daily Frankfurter Allgemeine Zeitung (FAZ), VW chief executive Bernd Pischetsrieder said the company would consider taking a stake in Proton only once VW finishes its plans for the coming five to seven years.

When asked whether it would use its own treasury shares to pay for a stake in Proton, he replied, "I don't really think so."

A spokesman for Volkswagen said, "These statements in the FAZ are still valid", without commenting further (Reuters).

The only way for Proton to survive is to quickly look for an international car maker/ buyer to be a major partner. If VW and other international car makers are really interested, Dr Mahathir should not insist of holding controlling stake.

It’s a catch 22 situation for Proton. Either lose face or lose money. And it appears that Dr Mahathir is still not ready to "lose face". He will try whatever he could to hold on to the grip on Proton. Believe it or not, it's "doing it out of love" in his own words.

Let's take a look at some nuggets of information to understand why Proton may not survive stiff competitions from other national cars ( like Perodua, Naza and Inokom) and  international brands by 2008 (on top of the problems created by APs) ...

Nuggets of information

Toyota Passo, Daihatsu Boon and Perodua Myvi are 3 similar cars that practice platform sharing. The engine and the chassis are the same for these 3 models.

Toyota has shares in Daihatsu. Daihatsu has shares in Perodua. Apparently according to Dr. M, the Japanese have a 51% stake in Perodua. The joint development of the above 3 models gives these manufacturers economy of scale advantage in terms of production costs.

In Malaysia, Toyota Avanza, Perodua Kembara DVVT and Perodua Myvi VVTi models share the same 1298cc K3-VE Dynamic Variable Valve Timing (similar to VTEC) engine.

Toyota invested some RM21 million in the Perodua factory so that Perodua can assemble the Toyota Avanza to meet the stringent Toyota quality standards. Apparently their defect rate is only 0.2 per car.

• The Perodua Kancil was based on the most successful selling car in Japan, the Daihatsu Mira.

• The Perodua Kelisa is based on the Daihatsu Cuore.

• The Perodua Kembara is based on the Daihatsu Terios.

• The Perodua Kenari is based on the Daihatsu Move.

• The Proton Saga, Proton Saga Aeroback, Proton Knight, Proton Saga Megavalve, Proton Saga Megavalve Aeroback, Proton Iswara, Proton Iswara Aeroback, Proton Wira, Proton Wira Aeroback and Proton Waja were based on several variations of the Mitsubishi Lancer.

• The Proton Satria and Proton Satria GTi are based on the Mitsubishi Colt/ Cyborg.

• The Proton Putra is based on the Mitsubishi Colt/ Mirage.
   

• The miserable failure, Proton Tiara, was the Citroen AX.

• The Proton Juara is based on the Mitsubishi Box.

• The Proton Waja 1800cc reputedly uses the Renault Megane engine.

• The Proton Savvy 1200cc sources its engine from the Renault Clio.

The Proton Perdana 2000cc and 2000cc V6 are based on the Mitsubishi Eterna. Apparently the Eterna was not a popular model in Japan.

Proton factory assembles/manufactures the car. Eon and USPD were appointed dealers. In the beginning Eon sold the sedans and USPD sold the hatchbacks. USPD ceased to exist when Proton bought it over and now operates under the name Proton Edar. Eon is now called a super dealer (whatever that means.).

Proton vehicles sold by the dealers come with accessory packages that are generally overpriced. If a customer refuses to accept the accessory package, he will have to wait months for the delivery of his car. This seems to be a simple means of discouraging the consumer from exercising his right to refuse the imposed accessory package. If the general strategy is to sell Proton cars on the premise of a low price (in relation to the competition), then why do the dealers inflate the price with overpriced accessories?

If the dealers want to make money out of the accessories, then they should not blatantly equip the car with cheap accessories and then overcharge the consumer. The consumer is now more informed and can judge good quality. If the accessories are cheap and damage or break easily then Proton will lose the goodwill, faith and trust of the consumer e.g. the defective power window issue. If the accessories fitted are of good quality, the consumer would most likely want them. Simply because if he accepts the accessory package then he does not have to spend a lump sum on the accessories and can pay for them in installments as an on-the-road-price.

Power windows that continuously fail are supplied by local vendors. There is talk that the local vendors supply such low quality products because they have to compensate for the hidden cost(more discreet than the word bribes) that they have to pay to remain as suppliers