Koon Yew Yin
The founding of Proton National Bhd in 1983 was a big expensive mistake to begin with. Billions of ringgit from taxpayers have been lost in the process.
The haemorrhage could not be stanched until only recently when Khazanah Nasional Berhad sold off its 43 percent stake in Proton to DRB-Hicom a few months ago. Malaysians have been wondering – is this finally an end to the unhappy saga of the government’s foray into the production of a so-called ‘national car’ or will the burden on taxpayers and car owners be continued in other new ways?
A revisit of this white elephant project is necessary to generate a larger public discourse especially amongst taxpayers who should be more concerned as to where all the tax money they’ve been paying has gone to.
One simplistic assumption which appears to have been made by the initiator of the national car project Dr Mahathir Mohamad is that an industry that is growing yearly should be profitable. It is not. In fact, industry data shows that the total profits of all the car companies over the last decades amount to only a modest return, and that only for the fittest in the industry.
The British experience
Consider the case of British Leyland, a vehicle-manufacturing company formed in the United Kingdom in 1968.
It was partly nationalised in 1975 with the government creating a new holding company. The company incorporated much of the British- owned motor vehicle industry, and held 40% of the UK car market.
Despite containing profitable marques such as Jaguar, Rover and Land Rover, as well as the best-selling Mini, British Leyland had a troubled history. In 1986 it was renamed as the Rover Group, later to become MG Rover Group, which went into administration in 2005. This ended mass car production by British-owned manufacturers.
Today, many British car marques have transferred their ownership to foreign companies. For example MG and the Austin, Morris and Wolseley marques have all become part of China’s SAIC Motor Corporation Ltd.
Mistake avoidable
Why Dr Mahathir failed to learn anything from the disastrous British car industry experience is something that completely escapes many Malaysians. Surely any good leader would have gotten his officers to do due diligence.
If they had done so, they would have found that the industry even with year-on-year rises in sales is not guaranteed to generate good returns to shareholders. Notwithstanding its long tradition of successful car manufacture and the country’s highly developed economy, the industry in the UK still failed to make profits.
The reason for this situation is because one of the forces that limit profitability is the intensity of rivalry between car companies from around the world. This leads to oversupply and pressure on prices, further exacerbated by a high degree of freedom for new competitors to enter the industry.
Unless there is an enormous internal market such as China’s or the United States, and we can take advantage of the economy of scale, small producers such as Malaysia are forever doomed to a minor placing, or bankruptcy, in the marketplace.
Played out by Mitsubishi
As far as Proton is concerned, Mahathir’s mistake in ignoring the economic fundamentals of the industry was compounded by our lack of expertise or comparative advantage to produce cars. The anticipated technology transfer from Mitsubishi did not take place.
This should have been anticipated. Why should Mitsubishi transfer their know-how to Malaysia when it can control the pace of transfer to maximize its profits? In fact, the top management of Proton should ask Mitsubishi to open their books to see how much profit they have made from Proton since it began operation.
Mitsubishi knew that Proton could not do without them and they were quite happy to continue making money from Proton while the company here continued to bleed to death.
Equally important was the poor quality of management. Just before the privatization exercise, Proton had accumulated RM4 billion during Tengku Mahaleel Ariff’s tenure as chief executive officer but its cash reserves had dropped to RM600 million during his successor Mohammed Azlan Hashim’s stewardship, according to Mahathir.
To encourage people to buy Proton, the government increased the import duty for other cars and car parts. As a result, the consumers have suffered. For over 30 years we have had to pay higher prices for all cars including Proton. Even this has not been sufficient to save Proton which has been sold five times already.
Another question to ask is why few car manufacturers, until recently, seem to get into bankruptcy? If so, then prices can rise relative to cost and shareholders can get a fair return.
There are two main reasons. In some countries there is always the perennial optimism of managers and shareholders. In Malaysia, the reason is different. Here, our government has been changing rules and regulations to obstruct other cars from entering our market whilst providing special favours including an ever ready supply of financial assistance to keep Proton afloat.
The end result is that some Malaysians have ended up with more expensive cars of other brands whilst most Malaysians have had little choice but to buy Proton – a poor substitute.
This is the price we have to pay for brainless patriotism.
Proton’s and our never-ending problems
Ours is a sorry saga which is a classic case study on how not to set up a car industry. As with the national airline, I propose that a special course on our experience with Proton be offered in the Institute of Tun Dr Mahathir Mohamad’s Thoughts.
What better way to honour the ex-premier than a post-graduate course on his pet project – the National Car – and inviting him to be a guest lecturer. I am sure he will have lots to share and many people to blame as to why the project has failed.
Earlier this year tycoon Syed Mokhtar Al-Bukhary was allowed to take full control of Proton. Since the sale, Proton’s problems have continued through its loss-making subsidiary, Lotus. In March, the conglomerate was forced to put in place a team of consultants to conduct an audit on the Lotus group of companies.
The need for this review was pertinent in light of the financial obligation of Lotus in the form of a £270 million (RM1.3 billion) syndicated loan taken at the end of 2010, for which Proton had given its corporate guarantee.
In March, Proton, in its third quarter results, noted that its subsidiary was in a technical breach of certain post-drawdown covenants on its long-term loan. For now, the loan amounting to RM1.01billion has been re-classified as a short-term loan as at Dec 31 until the receipt of approval for the extension of time.
Although the new owner of Proton undoubtedly has deep pockets (he is the 7th richest man in Malaysia) and owns a business empire that covers ports, the postal service, power, defence and financial services, besides automobiles, we can expect him to recoup his losses by raising the prices further on Proton thus burdening our car buyers, and by charging higher prices for the other goods and services that he is involved with.
In any way, the Malaysian consumer will continue to be suckered by the national car debacle.
Give me one company that UMNO b is managing have made money.
Manipulating ….buy high sell low at a loss where cronies made billions is what these crooks are good at.
Just look at the thousands driving brand new Merz and BMW
What makes these idiots so smart….to be instant multi millionaires…where ordinary Malaysians with much higher education….are made to look like fools.
Worst sill….almost all are dressed up with false tittle.
Mahathir …the brain behind all corruptions is making his flock of devils like people from Mars…so far advanced brains ans skills they have.
Proton…Bejaya Steel
2 of the companies and few more….check it out…how many billions lost.
MAS is another classic example.
We are lucky Malaysia is a very rich country.
If it was one with no natural resources like oil and timber…Malaysia would have one bankrupt years ago.
Brainless patriotism?
Certainly not me. I have resisted paying such ridiculous prices for Malaysian cars. Stay with your 20-year-old jalopy for as long as there is still life in it.
The only one brainless was that PM who started the project and the other PMs who continued to get Malaysians to subsidise and ‘finance’ it.
Bodoh je whilst some capitalist idiot laughs all the way to the bank.
While the criticism here is valid, I have always felt the elitist crtics of Proton fail to do all these years is calculate what actually Proton’s actual cost. If you add both the taxes paid and the difference in value of what Proton vehicle is worth in free market – all the years since 1983 plus etc, the number by my estimate is in the tens of billions.
Essentially Proton IS THE BIGGEST MALAYSIAN SCANDAL – bigger than Perwaja, bigger than PKFZ, bigger than BMF, even Bank Negara losses..AND that is just in nominal terms. In terms of present value, its literally could reach as much as RM100b..
Malaysia once had the potential to become the largest car assembly center in South East Asia. With Proton blocking the way, the hope is dashed and now the honor goes to Thailand.
///The end result is that some Malaysians have ended up with more expensive cars of other brands whilst most Malaysians have had little choice but to buy Proton – a poor substitute.///
This is the way umno accentuates the rich-poor gap. The wealthy are compelled to buy expansive cars and the poor have only the proton stable to pick their cars from. Of course needless to say, umnoputras belonged to the former category. More than that actually. They own not just luxury cars. They have ferraris and ghinis on top of their super-super bikes and horses. And they have no qualm whatsoever to show off their priced possession in public. You see they need to stamp their superior status in the minds of the poor. This difference means everything to umnoputras.
Moving on. It is apt for the author to describe the proton venture as an exercise of brainless patriotism. And that very brainless exercise continues till today. The exercise must carry on for it has wound itself into the NEP, then, and now the umnoputras’ unquestionable and untouchable (and lately, constitutional) ketuanan rights. Killing off proton would instantly translate into killing off the means to a good life for a large number of umnoputras. And that is NOT OK! I cant see how proton’s new owner could do a better job for proton’s profitability is not so much a commercial decision but more a matter of ketuanan rights. Let us not forget that the latter can and in fact in most cases does overide the former in priority and importance.
It is easy to see how and where proton had failed. Afterall we have one powerful weapon – the benefit of hindsight. So what the author said, to a large extent, is valid. But hyundai too started at round about the same time as proton. And so hyundai too ought to suffer similar market competition and conditions as proton have. However, unlike proton, hyundai thrived and today the korean car is seen as superior to proton. What happened? You see the board of proton has a member by the name Mr. Politik. And Mr Politik stands in the shadow of CrazyO’Mamak. So there lies the chain of failure.
I remember in the late 1970s, there were many comments from economists that Proton is bad idea. The Star, which was then an independent paper, carried several articles against the Proton project.
It seemed only one man was for it – Mahathir, the Indian turned Malay PM.
He hit out at every single Proton critic.
And now we pay through our nose for this stupid car that provides stupider service or pay even more for foreign cars.
Proton is today a car for poor Malaysians.
Even Ministers and their families don’t use this car!!!!!!!!!!!!!!!!
I hope someone in The Star will go to its library/ achieve and retrieve these articles or is the paper waiting for Mamak to kick the bucket to do that?
Proton was merely to boost someone’s ego and to tell the whole world what a ‘great guy’ and ‘visionary’ he is. That’s about all.
He didn’t care about feasibility studies, viability, costs and all. He just wanted it done so he will have an enormous ‘organism’. And nobody dared check him. Not even Marina.
The same goes for the many massive show-piece projects that are littered everywhere.
What is the cost of all these unnecessary white elephants to the country? RM 100 BILLION? RM 500 BILLION? Or possibly much, much more if you include leakages?
KTM – red, red ink.
MAS – red, red ink.
Proton – red, red ink.
Ports – red, red ink.
LRT, Monorail, bus – red, red ink.
etc.
The redder, the better.
All requiring massive injection of public funds.
Proton was merely to boost someone’s ego and to tell the whole world what a ‘great guy’ and ‘visionary’ he is. That’s about all.
He didn’t care about feasibility studies, viability, costs and all. He just wanted it done so he will have an enormous ‘organism’. And nobody dared check him. Not even Marina.
The same goes for the many mas.ive show-piece projects that are littered everywhere.
What is the cost of all these unnecessary white elephants to the country? RM 100 BILLION? RM 500 BILLION? Or possibly much, much more if you include leakages?
KTM – red, red ink.
MAS – red, red ink.
Proton – red, red ink.
Ports – red, red ink.
LRT, Monorail, bus – red, red ink.
etc.
The redder, the better.
All requiring mas.ive injection of public funds.
Proton probably incurred around RM 20 – 25 billion of public money. The mainland Chinese car manufacturers like Cherry and Geely never even had this sort of money, yet managed to produce cars for the international market.
In the early 1980s, when Mamakthir first announced his folly, a certain professor named Chee Peng Lim of Universiti Malaya wrote an article criticising our entry into a market with which we had no competitive edge, and that it will be a waste of scarce resources. Mamakthir was furious and his henchmen hounded Prof Chee out of the country. Prof Chee migrated to Australia where he became the Dean of the Economics faculty of Monash University.
Whenever anyone criticised Proton, and the fact that we lived for 30+ years with a substandard automobile with no technological advancement and no airbags until very recently, we would be accused of being unpatriotic, ungrateful, unwilling to support a village champion.
In the late 80s, a delegation of Detroit carmakers led by GM came to see Mamakthir, and suggested that the Big Three (GM, Chrysler and Ford) could make Malaysia an assembly hub for Asia provided the government open up the domestic market for American cars assembled here. Mamakthir immediately demanded that the Detroit carmakers allow for majority local equity participation. He knew that if he allowed this to happen, Proton would be killed outright. GM and Ford then went to Thailand and the rest is history.
Thank you Dr M.
Time has proven you and your legacy to be a bloody fool.
So much for being the Father of Modern malaysia and whatever father of development and all those ego-boosting titles that mean nothing in the world but inflates your jaguh kaampung mindset.
Which car is more expensive?
1. 1 million RM Ferrari
2. 70kRM Proton
Answer is 2. Ferrari, you get what you paid for (performance, looks, etc). Proton…hmmm.. You don’t get what you paid for. Lousy quality. Not worth the price. It is like paying 20rm for an abalone and paying 4rm for a peanut.
Proton……Mas Airline….Steel….Banks……all Mahathir failures.
Asked why his sons are billionaires…snake replies “Why are smart”….a direct insult to all Malaysians…and a hint to smart businessmen to be smarter and be his puppets..to get richer without sweating….just follow his instructions.
Mahathir’s UMNO b is a party planned to buy up Malaysia and Malaysians to be the Kind over 9 Kings…to rule forever and ever.
When all Malaysians are made to depend on the Govt…like slaves…mission accomplished.
All exposed…cannot work…Najib playing generous concerned PM & Santa Clause roles…throwing billions back to Malaysians..saying..forget he cheated …forget the killings..lets look forward..trust him…he is people’s PM again.
His show must go on..for the love of his life.
Several UMNO ministers’ kids are driving cars like Lamborghini, Porsche and Bentley. You’d never catch them driving a Proton because it would be too embarrassing even to these UMNOputras. Does Mamakthir drive a Proton ? Nah, he has several Porsches because his son controls the Porsche dealership.
Dis is d PRICE rakyat paid bcos of d blind faith of dumb UmnoB/BN voters on d cheating, corrupt, unscrupulous great dictator MMK
MMK started d great joke n rakyat suffered, paying 4 expensive poor quality Proton cars
While UmnoB/BN crooks n cronies made millions or billions through APs
///Why Dr Mahathir failed to learn anything from the disastrous British car industry experience is something that completely escapes many Malaysians. Surely any good leader would have gotten his officers to do due diligence.///–
That is assuming that Mamakthir, the Mamakputra had the nation’s interest at heart. It is not that he loved his position as PM less, he loved money and what that money could buy more.
My prediction is that Syed Mokhtar won’ t be able to make Proton work and will eventually have to be bailed out by the government – maybe at even double the price he bought it at. Speaking of buying Proton, has Syed Mokhtar really paid for the shares or has he been given deferred payment status ?