Proton Needs A Reality Check Despite What Mahathir Says

“Twenty-five years ago we did not dream of producing sophisticated cars”, Mahathir said last week, paying tribute to the dedicated group of Proton employees from the top management down to the plant workers. He pointed out how large U.S. companies like General Motors and Chrysler had to be bailed out, while Proton stood strong through the economic crisis of the past two years.

Despite losing Malaysia's number one automaker positioning to Perodua, Proton is producing higher-quality cars than before, Mahathir believes, citing the popularity of the Proton Saga as proof of that. “We no longer hear defects in Proton cars like its windows failing to close properly”, he added. Proton has the potential to penetrate demanding markets such as Europe with its growing, improving range of cars. “We have to enhance our capabilities now because Proton cars have a big potential in the world market”.

What Mahathir said regarding Proton is every bit true. But like every story, there are two sides to the coin. And he chose to focus purely on the politically-correct positives and not the glaring negatives. Yes, the Proton cars of today are more sophisticated than before, but Proton has not gone through 25 years and survived the crisis by the merits of its better, higher-quality cars.

The Malaysian government has been bailing Proton out for 25 years with a series of skewed government policies which gives Proton cars a significant price advantage in Malaysia. By comparison, General Motors, despite being American in origin, has to fight its own battles against strong foreign automakers such as Volkswagen and Toyota in the U.S., with nothing but the desirability and quality of its cars to rely on.

We do, however, agree with Mahathir that the new generation of Proton cars is showing both quality and reliability improvements. But if Proton is to realise the “big potential in the world market”, plenty more work and investment—on the cars and Proton branding as well as the dealer support and customer service—will be needed. Of the 174,481 vehicle units Proton sold in the 2009 financial year, only 22,797 units or 13 percent of total sales come from exports.

For the 2010 financial year, Proton, recognising that its current Malaysian market share of 28 percent leaves limited room for growth, has earmarked exports as a key growth driver, specifying China, India and Iran as the three markets with the most potential. Targeting developing countries with relatively less demanding customers is probably a good move. But with every automaker clamouring to win a slice of the pie in the massive Chinese and Indian car markets, competition is stiff and Proton will find its price-undercutting strategy near-impossible to sustain, unless it finds a local partner in China/India.

Having returned to profitability for 2009, and with the arrival of the Proton Waja replacement in late 2010 and Campro Turbo engine by early 2011, confidence in the Proton camp is understandably high, as indicated by the positive statements from the company management team and Mahathir. Going forward, however, Proton will benefit from a reality check, going back to basics to examine why it needs government assistance all these years in the first place. Before looking overseas, our national automaker ought to start producing cars that Malaysians will gladly buy even without the unfair policies in place.