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BP : Is it worth having a national car?
By Kapal Berita
25/10/2000 9:45 pm Wed
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
The Malaysian prime minister often hails the Proton, his country's
national car, as the shining example of Boleh (Malaysia Can), the
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
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
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
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
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
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