Malaysia’s first national car company, Proton – now in the custody of local privately-owned DRB-Hicom – continues to struggle to find its place in an increasingly competitive and open-boarder car world. Tony Pugliese considers the issues facing the company.
Earlier this year, DRB-Hicom enlisted the help of Dr Mahathir Mohamad, the person responsible for the establishment of the company in the early 1980s – during his 32-year tenor as the country’s prime minister, as chairman of the struggling national carmaker.
Proton clearly needs all the help it can get, including that of an 88-year-old statesman, to help it negotiate a new strategic partnership with a global carmarker.
The company produced a little over 150,000 cars last year, 139,000 of which were sold in Malaysia and around 12,000 units shipped overseas. Its largest single overseas market was the UK. The brand’s vehicle range comprises around eight models powered by the in-house Campro 1.3L and 1.6L engines.
These are hardly economies of scale that can support the comprehensive R&D programmes needed by car companies to keep up with the technology requirements of today’s fast-moving automotive markets. Proton’s in-house production capacity is currently 350,000 units per year, split between two domestic plants. The Tanjung Malim plant came on stream at the end of 2003 and is vastly under-utilized at present. Its current 150,000-unit annual production capacity could be doubled quickly with the introduction of a second shift. The plant was originally designed to produce at least 500,000 units per year.
At the end of last year, DRB-Hicom announced an annual production target for Proton of 500,000 units within five years, or by the end of 2018. It is highly unlikely to achieve anywhere near that on its own, particularly in the light of its lack of progress in the last 10 years.
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By GlobalDataFurthermore, DRB-Hicom is banking on a sharp rise in overseas sales to achieve these targets – an area where it has dramatically underperformed over the years.
Proton’s share of the domestic vehicle market has shrunk significantly over the years, to around 21% in 2013 from over 30% just ten years ago and from 70-80% at its peak over 20 years ago. It has lost much market share to the country’s second national car company, Perodua, as well as to foreign brands such as Toyota, Honda, Nissan, Kia and Hyundai.
The domestic market has more than doubled in size over the last 20 years, so the impact of rising domestic competition on Proton so far has been mitigated. Vehicle sales in Malaysia hit a new record of 654,000 units last year, compared with 286,000 units in 1995. While the Malaysian vehicle market is the most mature among the major economies of South-east Asian, it still has the potential to grow further, particularly if the sector’s high taxes and duties introduced to protect the national car companies are reduced.
Proton is unlikely to benefit significantly from any further growth in the domestic market, unless it can offer dramatically better products, or cut prices substantially, without incurring huge losses. The Malaysian government is under increasing pressure to lower tariff barriers in the country’s automotive market as well as to reduce other forms of financial support to the country’s national carmakers. Furthermore, new low-cost competitors are on their way, including China’s MG which has just opened a regional car plant in Thailand.
In terms of exports, Proton’s best ever annual volumes were in the region of 20,000 units – which it achieved also some 20 years ago. Overseas, the Proton brand has been swept aside by the rise of the Korean brands over the last 20 years and the Chinese will likely to repeat this in the next ten years.
Loss-making Proton has held alliance talks with almost all global car companies at one time or another in the last 20 years. These efforts have been renewed of late, including with various Japanese and Chinese firms. The main stumbling block over the years has been control of the local manufacturing company.
Any future strategic partner, whether it be a Chinese company such as Geely, a Japanese or European automaker, would be reluctant to take on Proton unless it can retain the right to operate Proton like a foreign subsidiary. This would mean significant restructuring, including cutting operational overlap such as R&D to reduce costs.
So far, potential partners have opted to set up their own manufacturing subsidiaries on a smaller scale, which means they avoid the risks of taking on the legacies of a state-owned company as well as corporate strategies dictated by the Malaysian government. While the Malaysian government’s efforts to date of trying to create a global carmaker are to be admired, it may ultimately find the idea of cutting its losses and settling for just a national car brand run by a foreign company increasingly attractive.