In Malaysia, Proton Stands for Success
International Herald Tribune
April 10, 1995
Michael Richardson 

The rapid growth of a middle class and strong government support for the transportation industry have helped make the Proton car an icon of both personal and national success in Malaysia.

Since it started production in July 1985, Perusahaan Otomobil Nasional Bhd., or Proton, has leapt from nowhere to become the predominant force in the country's vehicle industry.

The Proton sedan, chiefly the Saga model, captured 74 percent of car sales in Malaysia in 1994, up from 11 percent in 1985.

The Malaysian economy has grown by an average of about 8 percent a year since 1988 after adjustment for inflation, swelling the middle class in a population of 19 million.

An expanding network of new toll roads and highways is opening the country to easy business and leisure travel, luring more and more Malaysians to become motorists.

As disposable incomes rise after seven years of rapid economic growth, road transport — backed by an active government program to encourage local car production — will become "an increasingly prominent feature of Malaysia's development," said Lai Kwok Kin, vice president in the Singapore office of Merrill Lynch & Co.

Demand for cars is so strong that there is a long waiting list for new Protons. Edaran Otomobil Nasional Bhd., the company that holds an exclusive Malaysian franchise to market and distribute vehicles made by Proton, estimates that sales of the national car will reach 120,000 units in 1995, up from 109,066 in 1994 and 94,000 in 1993.

Proton has plans for a second plant in Malaysia that would increase total capacity to as many as 560,000 units a year by early next century.

The original, best-selling Proton Saga model is being overtaken by the pricier and more luxurious Wira. In January, the company launched its latest upmarket four-door sedan, the Perdana, priced at 75,000 ringgit ($29,000). The company also has a joint venture to make a three-door sport version, the Satria.

The main selling point of the Proton range is its claim to Japanese-style quality and technology at competitive prices. The Proton assembly plant is majority owned by entities controlled by the Malaysian government and 17 percent owned by Mitsubishi Group of Japan.

In expanding production to contain costs and develop economies of scale, Proton has set its sights on increasing exports to countries in Asia and the Pacific as well as to Europe.

The first commercial shipment of about 900 Proton sedans is due to go on sale in Australia by mid-year.

"We believe from the research we have done that demand will be very strong," said Robin Weedon, general manager of Proton Motors Australia Ltd. in Sydney, a division of Inchcape Motors Australia Ltd., the local Proton franchise holder. He said the Malaysian car would fill a niche in the Australian market for vehicles priced at under 20,000 Australian dollars ($15,000)

Proton, in a joint venture with a Malaysian partner and Philippine interests, recently laid the foundation stone for a 2.2 billion peso ($86 million) assembly and manufacturing plant in the Philippines, the company's first plant outside Malaysia.

Aside from selling locally to get around tariff barriers, the Philippine plant will export Protons to new markets in places such as Latin America, Papua New Guinea and Indochina.

Only about 20 percent of Malaysian production currently is exported, but Mohamed Nadzmi Salleh, Proton's managing director, is determined to raise that ratio. "As a small manufacturer, our cost structure is not as economical as that of the bigger players," he said.

The Proton venture, and the skills and technology which its development are intended to bring, are the cornerstones of a government program to make Malaysia a fully industrialized nation by 2020.

Prime Minister Mahathir Mohamad, a driving force behind both the Proton and the industrialization program, has said that Malaysia wants to export at least half the Proton sedans it produces.

However, the company is likely to find the export road much rougher than its home highway as it runs into protectionist barriers similar to those that foreign automakers complain of in Malaysia.

Since it began production, Proton has used preferential tax treatment given by the government to underprice rivals and win an ever greater share of the domestic car market.

For example, Proton pays only a 13 percent tax on imported components, mainly engine and transmission parts from Japan, while foreign companies in Malaysia pay 42 percent.

NOW, as it launches sales in continental Europe for 1995, Proton is starting to feel protectionist pressures from a saturated European market, where local manufacturers are increasingly worried at the inroads being made by Asian carmakers.

More than 600,000 Protons have been produced in Malay-sia. Since 1986, some 92,000 have been exported to at least 20 countries.

Britain is by far the largest export market, with sales of nearly 79,000 to September 1994, followed by Singapore with nearly 10,000. But sales to both countries are static.

Norzahid Mohamad Zahudi, deputy manager of Proton's business division, said that the company's export strategy is to concentrate on Asia and the Pacific "while not forgetting the rest of the world."

Proton has formed a joint venture in Vietnam with Mitsubishi and a Vietnamese company to assemble commercial vehicles. Mr. Norzahid said Proton hoped this would lead to local assembly of passenger cars.

Last May, the company signed an agreement with an Indonesian company controlled by Siti Hardiyanti Rukmana, the eldest daughter of Indonesia's President Suharto, for the initial export of 2,500 Protons to Indonesia. Malaysian officials said the aim was to assemble the car in Indonesia within five years.

Like many other international carmakers, Proton is also eyeing China, the world's biggest untapped auto market.

Mr. Mahathir said the government would use its "leverage with friendly countries" to promote expansion of Malaysia's automotive industry. He added that Proton, together with Japanese partners, was studying the Chinese market to find "a role for ourselves there."

Beijing's ban on new foreign entrants into its motor vehicle industry expires at the end of the 1995, although there have been recent official hints that barriers might be extended until 1998 or 1999 to protect local car and component makers.

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