A QUESTION OF BUSINESS | The first Proton rolled out of the Shah Alam plant in 1985, with the promise that eventually tariff protection for the infant car will be withdrawn in the future. Fast forward 33 years later, Proton, the company, continues to be an enfant terrible in its middle age, still crying out for its milk from a previously doting mother.

But its new 49% owner Zhejiang Geely of China, its new mother, is not so quick to feed it but instead insists that other overgrown infants - the vendors and the dealers - who have become fat on the public’s infant formula, share in the burden that this spoilt adult has become.

The ultimate solution however will involve weaning all parties, including Proton and its shareholders, from the constant stream of blood which the government forces out of the public through massive tariff protection for these overgrown, greedy infants who should be kicked out of the house and left to fend for itself.

Despite all that tariff protection which could have cost the public as much as RM360 billion over the years, and much more by feeding a non-competitive industry and the consequent cost to the economy in terms of opportunities lost, Proton is losing money.

Why? Because competitive national cars in the form of Perodua models, more reliable and better than Proton, are produced and sold at a much cheaper price. That’s because Perodua has got its technical partner right - Daihatsu of Japan. But even Perodua cars could be cheaper if tariff protection were eliminated.

Proton searched high and low for a technology partner but did not find one, coming close with Volkswagen in 2007. Until last year when a 49% stake was sold to China’s Zhejiang Geely Holding Group Co Ltd in a convoluted deal which was not properly explained. DRB-HICOM, controlled by magnate Syed Mokhtar Al-Bukhary holds the other 51%.

However, DRB-HICOM disclosed to analysts that the 49.9% stake in Proton was valued at RM770 million (minus the value of lands and other assets). Geely will inject RM170 million in cash and give Proton the rights to the Boyue model, valued at RM600 million.

In effect, cash of RM170 million gives Geely a 49.9% stake in Proton, the rest merely being rights for one model, which is a pretty good deal for Geely, but not for Proton. It’s a deal Proton could have cut with any major manufacturer without having to give up the equity stake and it could have structured payment according to car sales.

Worse, as pointed out here, Lotus was sold to Geely (51%) and Etika Automotive Sdn Bhd (49%) which is owned by Syed Mokhtar and his wife Sharifah Zarah Syed Kechik Al-Bukhary for 100 million pounds (about RM560 million), according to the announcement. That means Proton and the listed DRB-HICOM have no way to benefit from any recovery in Lotus due to its takeover by Geely after having spent RM1.96 billion on Lotus. Instead it is Syed Mokhtar who will, besides Geely. 

Overall, the deal is beneficial to Geely first and then Syed Mokhtar, with some benefit to Proton in terms of access to technology and none to the Malaysian public at all which will continue to pay high prices for cars - and that includes new Protons which are mere rebadged cars from Geely.

Driver’s seat

Now with Geely in the driver’s seat, Proton is weaning off its distributors, asking them to upgrade their facilities in preparation for the introduction of the Boyue, Geely’s new SUV to be re-badged and sold as Proton. This has been met with the usual complaints by especially bumiputera traders who are crying racism.

The Malaysian Association of Malay Vehicle Importers and Traders (Pekema) has called on Putrajaya to intervene in Geely-led Proton, claiming that several policies the company was introducing could see bumiputera distributors and vendors closing shop. Other issues raised included the new Proton management's directive for its vendors to reduce parts costs by 30 percent.

It’s not hard to see why the Geely-led management at Proton is asking for this. China is a large automotive manufacturer now and has large-scale parts manufacturing. Because of the economies of scale, unit prices are a lot lower there and it will be cheaper to source from China or set up new manufacturing operations here which can supply to China as well.

So, even as Geely-led Proton puts the squeeze on vendors and traders, it is time for the government to put the squeeze on all national car manufacturers. This can be done by giving notice that all tariffs on cars will be completely removed in five years to ensure that long-suffering Malaysians, who have subsidised the car industry to the tune of hundreds of billions of ringgit over the last three decades, can now source the cheapest cars from anywhere in the world.

That will rationalise the entire car industry in five years which will see not only removal of taxes but an end to the system of approved permits which saw the creation of billionaires who simply purveyed licences to import cars. Instead Malaysians should be allowed to import cars and anything else from anywhere in the world without tariff barriers.

Imagine what that will do to bringing down prices and increasing competitiveness.

As a car buyer and user, P GUNASEGARAM suffered much, along with other Malaysians, because of Proton, one of whose earlier, more reliable models he owned. Email: t.p.guna@gmail.com.