The current state of Proton
The decision made by the Government to go into heavy industries, including the automotive sector, in the mid-1980s was a bold and courageous one. However, the Government cannot continuously protect these industries.
Other countries such as Japan and South Korea have protected their automotive industry, but these measures were short and medium term in nature and were eventually abolished.
Proton, which is our national car project, needs to graduate from this protection.
Since I became the MITI Minister in 2009, I have been briefed by the Senior Management of Proton of the issues and challenges faced by the company on a regular basis. I have met with both the previous and current management teams and shareholders of the Company.
In 2009, the Company presented to me its restructuring plan which aimed to improve the quality of its cars, to boost exports and to make Malaysia a hub for the automotive industry in the region.
In 2012, following the takeover of Proton by DRB Hicom, the new owners came to see me and they presented another restructuring plan to make Proton more competitive. They also highlighted a number of ambitious plans to boost exports.
The National Automotive Policy in 2009 clearly stated the need for Proton to team up with strategic foreign partners. In this extremely competitive line of business, there is a need to set aside high capital resources for Research & Development (R&D). Scale is also crucial. Proton currently has neither of them.
The problems faced by Proton are very challenging. The company’s share of the domestic automotive market hit a peak of 74% in 1993, but currently hovers at 15%.
Since its establishment in 1983, the Government has provided grants, various forms of assistance as well as taxes forgone to Proton to the tune of about RM13.9 billion in total. There has been intense discussion between MITI and the Senior Management of Proton on the future of this company in the past six months. Proton’s Management has also made a number of presentations to the Economic Council chaired by YAB Prime Minister.
Our observations on the current state of Proton are as follows:
The company is a relatively small player in the global context and thus not able to compete with other foreign companies unless it can substantially increase its exports
Proton is suffering a problem of underutilization – about 35% of the available capacity in each of its two production plants is being utilised. The decision to have two plants is probably one of the mistakes made in the past by Proton.
About three years ago, Proton almost struck a deal with a renowned foreign player but at the last minute decided not to proceed with the proposal. Had this collaboration been realized, we may have seen an improved performance by Proton in the subsequent years.
Malaysia currently has two national car projects namely Proton and Perodua. The latter turns out to be a more sustainable model. Perodua Manufacturing, which is 49% owned by Malaysian shareholders including PNB, has a joint-venture with Daihatsu and Toyota, and is a profitable company.
Last year, a number of Proton vendors came to see me on a few occasions and shared their problems. Following that, MITI injected RM100 million to provide soft loans to alleviate their burden. Even then, it has come to my attention that some of the vendors may face serious challenges if Proton continues to operate at the current level of production and sales. A few of them might be out of business in the next three to four months.
In view of the very serious nature of the problem, the Government believes that the current business model adopted by Proton is not sustainable. The Government has been seriously deliberating Proton’s request for assistance for grants and soft loans. It is a major request and the Government needs to be thorough with its evaluation as a lot of public money is involved. We need to be particularly prudent in allocation of resources at this time when our national revenues have been seriously impacted by falling oil and commodity prices.
Having said that, I would like to assure Proton employees, vendors and the Proton ecosystem that their interests will be taken into consideration before we make any decision on its request for assistance.
If the Government decides to assist Proton, this would be made subject to several conditions including:
i. Proton needs to immediately identify a strategic foreign partner
ii. The Company must be professionally managed
iii. There must not be any interference in its business
iv. Some tough but necessary measures must be put in place for the long-term sustainability of Proton
I have been informed that there were instances when Proton appeared to be unprofessional in its decision-making process. In order for the Government to consider providing financial assistance to Proton, it is important that a competent leadership team be appointed in the company.
We note the decision made by Tun Mahathir to relinquish his position as the Chairman of Proton. While we recognise the contributions made by Tun Mahathir throughout his Chairmanship of Proton, we must not turn a blind eye to challenges faced by Proton and its inability to establish a solid financial footing.
In this regard, we hope that the new Chairman and Senior Management of Proton will help towards enhancing the true potential of Proton and pave the way towards a better future for the company.
The Government remains committed to ensure the continuous growth and development of the domestic automotive industry which would include the transformation of Proton and its ecosystem.
Dato’ Sri Mustapa Mohamed1 April 2016