Proton - Malaysian National Car Manufacturer

THE HISTORY OF PROTON

PROTON (CARMAKER) Proton is the Malaysian national carmaker (Malay acronym for PeRusahaan OTOmobil Nasional, 'National Automobile Enterprise'), which was established in 1983 under the direction of the former Prime Minister, Tun Mahathir Mohamad. Proton Holdings Berhad, the holding company, is listed on the Bursa Malaysia. HISTORY Based on technology and parts from Mitsubishi Motors, production of the first model, the Proton Saga began in September 1985 at its first manufacturing plant in Shah Alam, Selangor. Initially the components of the car were entirely manufactured by Mitsubishi but slowly local parts were being used as technologies were transferred and skills were gained. The 100,000th Proton Saga was produced in January 1989. Until the end of the 1990s, the car's logo featured the crest from Malaysia's coat of arms, featuring a crescent and a fourteen-pointed star. The new Proton logo features a stylized tiger head. In 1993, a model called Proton Wira was introduced based on the Mitsubishi Lancer/Colt. More than 220,000 units were sold between 1996 and 1998. Proton Perdana, based on the Mitsubishi Galant/Eterna, was first produced in 1995, intended for higher end market. By 2002 Proton held a market share of over 60% in Malaysia, which was reduced to barely 30% by 2005 and is expected to reduce further in 2008 when AFTA mandates reduce import tariffs to a maximum of 5%. Proton Waja (Proton Impian in UK) is the first car model designed internally by Proton. It was launched in early 2001 With the acquisition of Lotus technologies in 1996 from ACBN Holdings (a company owned by the same person who owned Bugatti), Proton has gained an additional source of engineering and automotive expertise. This led to the production of Proton Gen-2 which was code name Wira Replacement Model (WRM) before the launch. The Gen-2 is the first of cars to be manufactured and assembled at the new manufacturing plant in Tanjung Malim, Perak which is part of Proton City development project. The plant was opened in 2004. On June 8, 2005 Proton introduced the second model to be manufactured in Tanjung Malim, the 1,200cc 5-door supermini, the Proton Savvy. Both the Gen-2 and Savvy, were models that MG Rover was looking to rebadge when the British firm entered into collaboration talks with Proton. However these joint-venture talks were unsuccessful and MG Rover subsequently collapsed. In 2007, Proton launch its new sedan as replacement version for Gen-2 Sedan but with new name, Persona. The new Proton Saga replacement model (codename Proton BLM) was launched on 18th January 2008. The new Saga is based on the Savvy platform, but using Campro 1.3L instead of Renault engine. EXPORTS Proton exports cars to the United Kingdom, South Africa, and Australia and the company is aggressively marketing its cars in several other countries including the Middle East. Besides that, Proton cars has also been exporting a small volume of cars to Singapore, Brunei, Indonesia, Nepal, Sri Lanka, Pakistan, Bangladesh, Taiwan , Cyprus and Mauritius. 14,706 Proton cars were exported in 2006 Recently Proton returned to Guangdong, China, where it did business in the past but withdrew after having poor sales record. In July 2007, Proton signed an agreement with Youngman Automobile Group Ltd. Co., paving the way for the national carmaker to offer its products and services in China. Under the agreements, Youngman will import 30,000 Gen.2 CBU (completely built-up) units and resell them under its own EuropeStar brand and eventually develop a new range of Made-in-China cars with the engineering services provided through Proton's Lotus. Proton is expected to ship 1500 cars a month for 20 months starting December 2007 to fulfill the order. Proton began its exports from Malaysia to other right hand drive markets like New Zealand in the late 1980s, but its success was mostly limited to the United Kingdom where it entered the market, along with the Republic of Ireland, in 1989. They advertised there with the slogan Japanese Technology, Malaysian Style, Proton cars proved popular among budget-oriented motorists, and like Japanese and South Korean models before them, led to the demise of Eastern-bloc manufacturers such as Lada and Zastava. By the 1990s, Proton had withdrawn from the New Zealand market after offering only the Saga four-door and Persona five-door models. The company also exited the Irish market in the early 1990s, following limited success in that country. The Persona and Natura models were sold in Chile briefly during the late nineties by a local Nissan importer, but few were sold and the venture ended after two years.[citation needed] Proton also exports cars to Singapore and Australia, and now produces models in left-hand drive, for export to continental Europe. An entry into the US market was considered by Malcolm Bricklin following Hyundai's successful launch in the mid 1980s. However, exports to the US never materialized, as the cars required hundreds of changes to meet American safety standards in order to secure coverage from auto insurers and satisfy legislative requirements. Proton export models still do not comply to all environmental standards such as emission limits. The model that Malaysia has followed with the formation of Proton may be used as a case study for rent seeking as tariffs on imported cars rose almost immediately following the formation of Proton. Also AFTA agreements on relaxing entries into the ASEAN marketspace had exemptions specifically for Proton. The Malaysian government gained a three-year exemption for Proton from 2002 to 2005 where entry tariffs had to be lowered to 5%. This was replaced by other duties resulting in no net decrease in automotive prices for importers. In the United Kingdom, Proton cars suffer somewhat from a poor public image. They are considered deeply unfashionable with younger drivers, they are identified as being a vehicle popular with elderly people.[citation needed] DROP OF SALES In 2006, Proton's sales dropped 30.4% from 166,118 in 2005 to 115,538 for the Malaysia market, with a later report indicating a 55% fall of sales to 962.3 million ringgit, its lowest in at least seven years. This allowed Perodua to overtake Proton as the country's largest passenger carmaker for the first time, with a 41.6% market share, while Proton's market share fell from 40% in 2005 to 32% in 2006. In the period ending December 31, 2006, Proton has also suffered three consecutive quarterly losses. Compared to a profit of 86.5 million ringgit in 2005, the car company lost 281.5 million ringgit in 2006. Proton blamed discounts from rivals. Total losses in 2007s financial year climbed to $169 million. The Employees Provident Fund (EPF) acquired an additional 830,000 shares in a transaction that spanned between January 5 and January 12, 2007. ABORTIVE STRATEGIC PARTNERSHIP WITH VOLKSWAGEN AG In October 2004, Proton announced that an understanding had been reached with Volkswagen AG of Germany to establish a strategic partnership. Under the tie-up, the two carmakers were expected to exploit each other's strengths. Proton would gain access to Volkswagen's superior technical capabilities and technology. In return, Volkswagen would utilise Proton's spare capacity at the latter's Tanjung Malim plant to assemble cars for export to the South-East Asian market, where the German auto giant had a weak presence. On January 13, 2006, Volkswagen finally announced that negotiations about the partnership had failed because VW's desires clashed with the terms and conditions offered by Proton. VW were more interested in eventually controlling Proton Holdings rather than just being a strategic partner. Despite this, Malaysian news announced that Volkswagen AG has signed an agreement to buy a 51% share in Proton on January 26, 2007, which turned out to be unfounded. Throughout most of 2007, rumours about continuing merger talks with Volkswagen, and occasionally General Motors surfaced in the local press and at briefings given by top government officials. Finally however, on November 20 2007, Proton announced that talks regarding any partnership with Volkswagen had ended with immediate effect, citing improving sales over the year, a favorable export outlook and confidence in management turning around the company without external collaboration. This unexpected announcement resulted in a 19% overnight drop in Proton's share price to their lowest value in seven years, due to the market's perceived uncertainty about the future financial viability of the company in an increasingly competitive local and world market. ACQUISITIONS Lotus In 1996, Proton acquired a 63.75% share in Lotus Group International Limited for 40.64 Million Pounds Sterling. A later PriceWaterhouse Coopers audit would find that the CEO, Yahaya Ahmad, had inked the agreement on October 16, 1996. The agreement was presented to the board for approval on 27 November 1996. As part of the purchase agreement (signed prior to board agreement), there were restrictions placed on Proton's ownership of Lotus. One of the restrictions was a prohibition on diluting ACBN's remaining shareholding for a period of five years. This restricted Proton in its operation of the Lotus business and required Proton to guarantee a 40 million pound loan in 2000. MV Agusta In December 2004, Proton purchased a majority share in MV Agusta of Italy at 70 million Euro. MV Agusta is the manufacturer of MV Agusta, Husqvarna, and Cagiva motorcycles. A year later, Proton sold off its 57.7% share in MV Agusta to Italy's GEVI Spa for a token of 1 Euro. Due to heavy debt by MV Agusta, the selling enabled Proton to write off the losses off its book. But the buyer would assume the 107 million Euro ($174 million) in debt. In August 2007, GEVI Spa the company that bought over MV Agusta for 1 Euro sold the brand Husqvarna and its factory to BMW for a reported 93 millions euros leading to speculations by the Malaysian public of bad management of the company's board of directors. TRIVIA When the first Proton appeared on Malaysian roads, local wits promptly dubbed it (Proton Saga) the 'Potong Harga', meaning the 'cut-price' Proton. And for good reason. The Proton was at least 20% cheaper than non-national makes in the same 1.3 to 1.5 liter class. With both the price and a dash of national pride working for it, the Proton got a rapid hold on the market. By 1988 the Proton had overtaken all other makes and grabbed 73% of the passenger car market. In 1983, when the 'national car' had been planned, Malaysia was selling just over 90,000 cars a year and the market was growing annually by 20%. The Proton plant was designed to turn out 80,000 units a year and could gear up to 120,000 units. But in Proton's first full year of production (1986), car sales took a severe dip to 47,000 and next year, due to the worsening economic situation, just 35,000. Only in 1988 did the market begin a recovery to 54,000 units, by now most of them Protons. Since then, the market has grown steadily to a 2005 peak of 417,000 cars Government policy has kept the Proton cheaper than other makes by the simple strategy of taxing the competition, while giving Proton exemptions from these same taxes. Duties on packages of parts for assembly into complete cars in Malaysia is said to average about 150%. Proton is exempted from most of these On the 1st of January 2008, the postponed-several-times full implementation of an ASEAN Free Trade Agreement which Malaysia originally signed on to in January 1992 was to finally have come into effect. The agreement would effectively bar practices that discriminate against goods (including vehicles) that are considered “Made in ASEAN” by the use of Tariff and/or Non-Tariff Barriers. This would practically eliminate most of the price advantage, achieved by way of the 50% rebate Proton (and other “Malaysian-made” cars) enjoy on the hefty (75 to 125%) engine-capacity-related Excise Duty applied to new vehicles sold in Malaysia. This rebate is largely responsible for the non-Malaysia ASEAN-made cars costing between 30 and 60% more than an equivalent locally-made vehicle. With a “level playing field”, within the confines of CEPT (which at the moment allows a maximum 5% import duty) using existing FOB prices, an ASEAN (Thai-made) Toyota would sell for within 10% of a comparable Proton, and would probably result in the devastation of Proton the company. It would appear that this is an unacceptable consequence to the Malaysian government, so for the time being, possibly till the much anticipated General Elections, local car manufacturers will be allowed to continue receiving the excise duty rebate, with the Government picking up the tab for probable penalties it will have to pay to ASEAN members for the gross disregard of the Trade Agreement requirements. It should be noted that the main “solution” mooted by the Malaysian Government over several years to maintain the pricing advantage of locally-made cars, by providing grants and subsidies (to counteract a removal of the Excise Duty rebate) would also be deemed to be non-compliant with the Trade Agreement, contravening Non-tariff barriers to trade requirements. The lack of direct competition at Proton models' price points (in Malaysia) has allowed Proton, for many years, to continue selling very outdated designs, generally with scant regards to providing basic safety equipment such as airbags and anti-lock braking in domestic models. Additionally, J.D. Power survey results have consistenly shown that Protons have poorer rankings in intitial quality than the available competition

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