The Government’s decision for Proton to stop further negotiations for a foreign partner after commencing talks from October 2004 shows how inconsistent the present administration can be in pursuing its policy. The reason given for the decision is also disappointing it that it shows a lack of vision and the lack of political will to bite the bullet to correct problems.
The reason given for not proceeding with the negotiations is that Proton has recorded improved sales in recent months and a better poll in consumer satisfaction index. Unfortunately this does not address the core problems of Proton.
The major problem that confronts Proton and has always confronted Proton has not been addressed. Malaysia with a population of 23 million is a small domestic market. In 1983 when Proton started the sales of four-wheeler were 108,314 units. The local market was not big enough or economically viable enough to support a local brand. Car manufacturing requires huge and constant investment in developing new models, acquiring sophisticated technology and expensive equipment. It is therefore necessary to produce in large volumes in order to reduce the fixed cost per unit of vehicles. It is also crucial to limit the number of makes and models to enable longer production cycles and thus enjoy the benefit from economies of scale.
To offset the small domestic market Proton has to increase exports to be viable. To do so Proton must be able to produce a car that is cheap enough and with sufficient quality to compete in the international market. To acquire the capabilities and strategies to fit into the global strategies to compete with the leaders such as Toyota, Nissan, Honda, the European and American makes.
The sad fact is the Malaysian government has protected Proton this past 20 years with 300% import duties and by playing and tweaking with excise duties and import tariffs. This has produced a national carmaker that is complacent and completely uncompetitive in terms of pricing, quality, lacking new models, has a huge unutilised capacity at its Tanjong Malim plant and does not fit into any global automative value chain.
Therefore the reasons given for not proceeding with the negotiations for a foreign partner is not convincing and if this is in fact the reason, then it is disappointing as this is not dealing with the real problems. Unless the Government shows that it has the political will the people will have to continue to shoulder the burden of paying artificially higher prices for owning a car which has become a necessity due to the poor and unreliable public transport system.
A study of the policies by Thailand and South Korea shows that where the government is brave enough to make hard decisions then the automotive industries will become a significant engine of growth and contributor to the economy and well being of its citizens.
Thailand had liberalised its market. In 1999 Thailand reduced import duties for passenger cars from 300% to 100%. The Thai government provided generous incentive packages to attract foreign automakers and to strengthen the country’s industrial competitiveness. Under AFTA, Thailand has reduced automotive tariffs to 0-0.5%. Thailand has now become “the Detroit of Asia”. In 2005 it had a production of an astounding figure of 1.1 million units with 421,911 units exported.
South Korea is another example of the need for change and the positive results it brings. Prior to the Asian Financial Crisis the structure of the automobile industry was based on the chaebols. The South Korean Government condoned cross-subsidising between subsidiaries of the chaebols, political-business collaboration and providing excessive protection to domestic industries by limiting foreign competition and maintaining ownership operations.
When the Asian Financial Crisis hit South Korea, Hyundai was swamped in financial difficulties. Hyundai with the South Korean Government bit the bullet and undertook substantial reforms. It opened up the previously protected sectors and allowed foreign firms to take over Daewoo and Samsung. Hyundai was then forced to become efficient and to overhaul its operations, Hyundai has since become a major player in the global arena and threatened other more established competitors.
Hard decisions have to be taken to turn Proton into a competitive producer in the export market. The government cannot continue to protect the car maker that has not and will not be capable of making significant contributions to the economy if it does not address the hard issues. The people have carried Proton for 20 years. The Government should not make the people carry this burden on one minute more than necessary. It is certainly hoped that the people will not have to carry this burden until 2057.
William Leong Jee Keen
Parti Keadilan Rakyat
22 November 2007