Thais Welcome Foreign Firms; Malaysia Takes Control : 2 Routes for Asia Auto Industry 
International Herald Tribune
October 4, 1999
Thomas Fuller  and Thomas Crampton 

Politicians in Malaysia and Thailand sometimes cite the return of traffic jams as proof that their battle-scarred economies are recovering. And while that may sound like an unscientific barometer of economic performance, it underlines the importance the automobile industry holds for the region's two biggest car producers.

Building on the ashes of the regional economic crisis, Malaysia and Thailand have big plans for their car industries. But the two competing neighbors are pursuing strategies as different as a Volkswagen Beetle is from a Cadillac.

On one extreme is the Malaysian approach: nurturing a national car project and channeling hundreds of millions of dollars into the development of a car designed from the ground up.

On the other extreme is Thailand, which has simply opened its doors to the world's biggest carmakers and encouraged them to build factories. Toyota Motor Corp., Mitsubishi Motor Corp., Ford Motor Co. and General Motors Corp. all build and export cars from Thailand.

The two approaches tell a broader story about the contrasting philosophies Thailand and Malaysia have in managing their economies.

In Bangkok, a laissez-faire attitude prevails with little central planning. In Kuala Lumpur, government and industry work side by side, so much so that officials have a name for it: Malaysia Inc.

The total production of cars in both countries is still small by global standards. Together, Malaysia and Thailand are expected to manufacture about a half-million cars this year, compared with total global production of 45 million cars.

But analysts predict that the 500,000 figure will rapidly increase as the industry develops in the region and as production shifts from more expensive locations in developed countries. Mitsubishi has already shifted its entire global production of pickup trucks to Thailand.

"The cost of developing in Thailand or elsewhere in the region is a heck of a lot cheaper than in the U.S.," said Jerry Kania, president of Southeast Asian operations at Ford, which opened its regional headquarters in Bangkok in August. "We want to make cars here in Asia and we want to develop cars here in Asia."

Both Malaysia and Thailand are expecting to export increasing numbers of cars to the world. But the difference is that Malaysia wants to do it its own way.

Kuala Lumpur's national car program dates to 1983, when the government invited Mitsubishi to help form Perusahaan Otomobil Nasional Bhd., or Proton. The company built a factory near Kuala Lumpur and the government shielded it from outside competition by imposing high tariffs on imported cars.

Today, Proton cars, which are based on Mitsubishi models, are ubiquitous in Malaysia. Proton enjoys a market share of more than 65 percent and has exported a total of about 186,000 cars to date.

But Proton has bigger ambitions than just re-engineering cars designed by Mitsubishi. It is planning to produce a model from scratch, a project already in the prototype stages and estimated to cost no less than $250 million

Proton is also drawing on the engineering experience of a company it acquired two years ago: Lotus, the British company best known for its high-end sports cars.

These ambitious plans will reshape the Malaysian economy in important ways. To finance the car's development, the government is tapping the resources of Malaysia' s national oil company, Petroliam Nasional Bhd., or Petronas.

Petronas will soon take over the carmaker from its indebted owners — a move that effectively nationalizes the car project and seeks to transform the nation's oil wealth into manufacturing acumen. Mahaleel Ariff, chief executive of Proton, says the carmaker's plans must coincide with the national interest.

Malaysia's prime minister, Mahathir bin Mohamad, who provided the impetus for the car project in the early 1980s, has taken an active role in pushing through the development of the new car.

Across the border, in Thailand, there is scorn for this approach.

"People may criticize the Thai government for a lack of vision, but we don't end up with a big boondoggle like the Proton," said Ammar Siamwalla, a senior adviser to the Thailand Development Research Institute, a key player in helping shape Thailand's development policies.

Indeed, Malaysia faces an uphill battle in trying to convince the automotive world that a small country can compete with today's giant car corporations.

John Bonnell, head of research at Automotive Resources Asia Ltd. in Bangkok, said: "Proton needs to find a competitive niche in the global market. I just don't know what that niche could be."

So far, export projections also auger poorly for Malaysia, Mr. Bonnell said. Last year Proton exported 18,000 cars, a number he says he expects will rise to 40,000 cars by 2004.

Thailand, by contrast, exported 69,020 cars last year and is expected to export 250,000 in 2004. But if Thailand's policies are showing signs of promise, industry analysts say that is partly due to luck — and the sometimes anarchic Thai political culture.

Thai policymakers toyed with the idea of a national car in the mid-1980s, said Mr. Ammar, but the country's rapid succession of governments left little time for long-term planning.

It was only in the mid-1990s that Thailand became known as the Detroit of Southeast Asia. That notion as derailed by the regional economic crisis in 1997 but seems to be regaining credibility as car factories increase exports to compensate for sluggish domestic sales.

Eight major car manufacturers are expected to operate their own plants in Thailand by the end of next year.

For the rest of Southeast Asia, the consequences of Thailand's and Malaysia's competing visions for the car industry could be the price that consumers pay for imported cars.

Southeast Asia's six largest economies are scheduled to cut tariffs on 85 percent of products traded in the region to a maximum of 5 percent by January. But Malaysian officials said last week that their country would not meet a January 2000 deadline to cut car tariffs throughout the region.

To protect Proton from cheap imports, Malaysia has maintained high tariffs on both car parts and fully assembled cars. Duties on a fully assembled imported car in Malaysia range from 150 percent to 300 percent, depending on engine size.

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