From The Bangkok Post

23rd October 2000

Is it worth having a national car?

Malaysia has been allowed to defy the region's proposed tax regime, and it is the Thai auto industry that suffers. Also suffering are the Malaysian people forced to pay to prop up the artificial Proton demand.

S.H. Chong
Kuala Lumpur, Bangkok Post

The Malaysian prime minister often hails the Proton, his country's national car, as the shining example of Boleh (Malaysia Can), the national slogan.

On the surface, it looks as if Proton is a great success. After all, it commands roughly 60% of the local automotive market.

Drive along the streets of Kuala Lumpur and you will see Protons everywhere. It is the first car a fresh graduate would consider buying. This has nothing to do with patriotism or because Proton is a popular brand. It has to do with simple economics: It is the cheapest car on the market.

But being the cheapest doesn't mean it's cheap. It just happens to be cheaper than foreign cars, which can be taxed by up to 300%. Many foreign cars are referred to locally as houses on wheels because that's how much they can cost.

Proton apologists will often argue that cars are even more expensive in Singapore, where the taxes on cars are even higher than in Malaysia.

That's actually a red herring. Singapore makes cars expensive in order to avoid traffic congestion. Malaysia, on the other hand, makes foreign cars expensive so that Proton can survive.

That's essentially the message that Fumio Yoshimi, a Japanese member of Proton's board (Proton has a strategic partnership with Japan's Mitsubishi Motor Corp), delivered when he was quoted in a foreign news report as saying that Proton is profitable only because it gets special protection from the government.

"Without protection, our estimate is that Proton would have less than 30% market share," Mr Yoshimi said. "With protection, it's about 60%." Mr Yoshimi resigned soon after these comments.

So we have a national car and Malaysian consumers suffer for it. But the negative effects of Proton are more wide-ranging than just hurting the pocket books of average Malaysians.

Malaysia has refused to open up its car market by 2003 as called for by the Asean Free Trade Area (Afta). And in the typical and expected spirit of not rocking the boat, Asean trade ministers agreed to let Malaysia delay tariff cuts for cars to 2005.

Malaysia's tough stance was criticised by Ken Richeson, executive director of the US-Asean Business Council, who called it "clearly a step backwards".

Of all the Asean countries, the one hurt most by Malaysia's actions is Thailand, which has a thriving automotive industry but not a national car project.

Right now, Thailand cannot export cars cheaply to Malaysia because of the high taxes involved. It is doubtful that it will be able to do so even in 2005 unless one of two things happens: Malaysia abandons the idea of a national car project or Proton takes up a big foreign partner.

It is highly unlikely that the first option will come about. But it is quite possible that the second might.

Prime Minister Mahathir Mohamad earlier this month said in London that Malaysia might be willing to sell up to 30% of Proton to foreign investors. He said a major US car maker had expressed interest in buying a stake in Proton but he did not name the company.

Rumours and speculation flew in the market. One local newspaper even identified two specific US companies as being the prospective partners. Proton, however, was quick to kill the rumours by telling the Kuala Lumpur Stock Exchange that it had not held any discussions with either Ford Motor Company or General Motor Corp for either company to take a stake in Proton.

This doesn't mean it won't happen though. Proton is a national project-or rather a pet project of Dr Mahathir, and he won't let it fail. If it means allowing a foreign partner to take a 30% stake as he suggested in London, he would do it. Analysts say for Proton to remain viable, it has to do it.

The advantages are clear. For one thing, it would give Proton greater access to foreign markets. It also would allow the company to undertake global sourcing of parts, which would greatly reduce costs. Proton currently is still using a Mitsubishi engine.

Another advantage is the transfer of technology, which even Dr Mahathir has said is very slow in coming from its current Japanese partner.

Last but not least, it would allow Proton to be used as a manufacturing base by its foreign partner, thus allowing Proton to benefit from economies of scale. With a strong foreign partner Proton would be in a position to compete, if not on a global basis, at least regionally.