Malaysia’s automotive industry: Don’t expect change unless Proton is changedPOSTED BY admin ON 22 August 2017
There was recently an opinion provided by Firdaos Rosli, director of economics, trade and regional integration at the Institute of Strategic and International Studies (ISIS), Malaysia.
Published in the NST on August 15, he argued that it would be all right by him if Zhejiang Geely Holdings owned a majority stake in Proton rather than the current situation where it owns a minority 49.9 per cent.
I, would actually go further to say that I feel many politicians use Proton as a tool to promote their profile as patriots – and I am not just talking of former Prime Minister, Tun Dr Mahathir Mohamad. At least, he’s got locus standi as the founder of the national car company and Proton indeed did build up Malaysia’s manufacturing capacity.
These politicians and self-appointed representatives of Malaysia claim Proton must be owned by Malaysians. However, I think national chauvinism is inappropriate in the automotive industry, which is the world’s most dynamic driver of technology, especially in the coming age of electric and autonomous vehicles.
It might turn out that the connected car becomes the most conspicuous form of the Internet of Things (IOT) and that the automotive industry as well as its supporting vendor network be the biggest employer of computer and IT graduates globally in times to come.
Malaysians should be given a chance to compete in that environment and it would be wishful thinking to hope that this could be achieved without strategic foreign partnership.
That’s the reason why I would like to argue it is imperative that Zhejiang Geely Holdings be given the majority share in Proton to structurally reform Malaysia’s automotive industry.
If not, Malaysia’s relevance as a car making nation will increasingly be diminished by Thailand, which is the world’s largest exporter of pick-up trucks.
Additionally, Indonesia’s position as Southeast Asia’s largest car market (with 1.1 million domestic sales compared to Thailand’s 500,000 last year) is attracting Japanese direct investments to build cars for the vibrant Indonesian domestic market and in the long-term, for other members of the Asean.
For example, Mitsubishi Motors Corporation (MMC) has commissioned a new plant to make an all-new compact MPV, the Xpander, in Java. It will start selling the Toyota Avanza-class MPV by the end of the year and it will export this to the Philippines next year.
After that, the Mitsubishi Xpander will be exported to Thailand and then to Malaysia.
At the GIIAS Jakarta Auto Show this month (mid August), Indonesia’s Deputy Prime Minister, Jusuf Kalla, suggested that the tax structure on passenger cars would be revised downwards to the level of compact MPVs.
Let’s be realistic — every one of the three Asean nations with car manufacturing capacity has an ambition to export cars to its neighbours. The pressure is ratcheting up on Malaysia to reform its automotive industry beyond import substitution.
The first thing is to let go of Malaysia’s majority ownership of Proton. This, is assuming Zhejiang Geely Holdings is willing to take the gamble and that DRB-Hicom is allowed to sell down its stake in manufacturing – think of Perodua Sales (majority controlled by Malaysia) and Perodua Manufacturing (majority controlled by Daihatsu/Toyota).
Why would that matter?
First: A strategic foreign partner must own a majority share in Proton otherwise its corporate responsibility will be to safeguard its proprietary technology and this would mean it won’t share with Proton.
Zhejiang Geely has rich technology from its ownership of Volvo Cars. It has Electric Vehicle (EV) and autonomous driving technology from the Swedish subsidiary.
We can assume Zhejiang Geely would be keen to have a majority stake in Proton because Malaysia has its 2014 National Automotive Policy (NAP), which specifically champions electric vehicles. Also, the China government has put an embargo on new EV’s for its domestic car companies.
Second: Japan dominates Southeast Asia’s automotive market. To overcome the cartel controlled largely by the Toyota group (including Daihatsu, Hino and some cooperation with Mazda), Honda and Mitsubishi, Malaysia needs to introduce a disruptive element such as a Zhejiang Geely controlled Proton.
Third: Malaysians will probably support a ZGH-Proton brand car, but will Thailand and Indonesia? The consumers there are used to the best cars in the world – Vios and Avanza from Toyota, City, Civic, CR-V from Honda, Sunny from Nissan and other top models from Mazda and Mitsubishi.
What are the chances for a Zhejiang Geely Proton car? Not so good I would think, unless it has a brilliant marketing plan and disruptive products that shatter the traditional Indonesian and Thai perspectives of the car as an asset and holder of resale value.
Of course, there are many “ifs” in this equation (Does DRB-Hicom want to sell that remaining one per cent strategic stake?), but it’s better to attempt rather than to hope for new and better outcomes using old and non-performing strategies. And by this, I mean don’t hope for a Malaysian-controlled Proton to make any waves in the Asean member region.
A Zhejiang Geely controlled Proton might have a better chance to make Malaysia an exporter of cars for Southeast Asia and who knows, god willing, even to other right-hand drive countries in the later stages. It’s all about markets, technologies and competition.
England moved its politicians out of the car manufacturing industry when its former Prime Minister, Margaret Thatcher, took the decision to sell off its government controlled Leyland and BMC.
Did it mean the end of England as an automotive power? No. England remains the hub of Formula 1 research and development and engineering for almost all the racing teams. Sauber F1 remains in Hinwil, Switzerland.
Toyota and Honda have some of their largest factories in England for domestic and European export markets.
Again, can Malaysia export cars to other members of Asean in a meaningful amount? Perhaps, if Zhejiang Geely Holdings owns Proton. Then, there could be a good chance of disruptive change.
- Geely Auto’s (HK 0175) revenue for the first half of 2017 reached RMB¥424bil (RM25.38bil), up 118% from the same period last year.
- Profit for the first half of 2017 reached RMB¥344bil (RM2.80bil), up 128% from the same period last year.
- 530,627 units sold in the first half of 2017, an 89% increase from the same period last year and reaching 48% of adjusted 2017 goal.