NUSA DUA, Indonesia - National carmaker Proton said it will invest some RM5 billion in research and development over the next five years in its drive to become an Asean giant.

But industry observers said the carmaker faces a tough road ahead because of its relatively high costs, weak export capabilities and low acceptance of Proton cars abroad.

Speaking at a high-level business summit held in conjunction with the Association of Southeast Asian Nations (Asean) summit, chief executive Mahaleel Ariff described Perusahaan Otomobil Nasional (Proton) as a "mini Detroit of the east."

From humble beginnings two decades ago, Mahaleel said Proton has stepped up its research and development to create its own engine and its purchase of British sports carmaker Lotus has turned it into a "virtual design company globally."

Its three-billion-ringgit auto township at Tanjung Malim north of Kuala Lumpur, modelled after Detroit, houses a high-tech manfacturing facility that will become "Asean's largest engine plant" when operational by year-end, he said.

"We have invested RM4.3 billion in research and development in the last five years. We will spend another RM5 billion in research and product development over the next five years," Mahaleel said.

Doubling annual production

"Asean has shown that we can grow our own global brands. So why not the auto industry and Proton? We must be daring and we must stretch our imagination."

Malaysia is only among a dozen countries worldwide that could design and manufacture its own car, with Proton now boasting a 10,000-strong workforce, including 2,000 employed abroad, he said.

The national car project has spawned an industry involving tens of thousands of vendors and suppliers, with annual purchases of parts and components totalling some five billion ringgit, he added.

The new Proton plant, expected to cut costs by 20 percent, will double Proton's annual production to 500,000 cars by 2005 and to a million by 2010. It is expected to roll out new competitive models equipped with Proton's own Campro engine early next year.

Proton has been protected since 1985 by high tariffs and other advantages but this will disappear when the market is liberalised in January 2005 under the Asean Free Trade Area (Afta).

Tariffs on imported cars in Southeast Asia fell below five percent in January under Afta but Malaysia has obtained a reprieve for its auto industry until 2005.

Malaysia has said it would impose excise duties on imported cars from January to offset losses in revenues from import tariffs. Critics said the move was aimed at evading Afta and to protect Proton which is already feeling the heat.

Sales dropped 10 percent last year to 239,783 and further in the first half this year.

High cost structure

Frank Messer, president and chief executive of Daimler Chrysler in Southeast Asia, told AFP on the sidelines of the summit that Afta would open up opportunities for Proton. But it must strive to keep costs down and improve exports and acceptance of its cars overseas.

"The cost structure of Proton is still relatively too high. There is also the issue of export capabilities and the acceptance of clients outside Malaysia for new Proton products," he said.

"Afta will give them a great opportunity but as a producer, if you don't have a million units, it will be quite difficult. It will be very tough." - AFP