Malaysia’s national carmaker, Proton, is once more in the spotlight, not because it’s ready to introduce a new model but because it’s looking for money.
Despite denials from Proton Holdings’ parent DRB-Hicom, owned by billionaire Syed Mokhtar Al-Bukhary, the government has confirmed that the carmaker has submitted a funding request. In any case, people cannot fathom why Proton is still in the red after so many turnarounds and restructurings.
Proton began life 31 years ago as a maker of affordable cars at a time when foreign makes were beyond the reach of the average Malaysian. Headquartered in Shah Alam, Selangor, it operates an additional manufacturing plant in Tanjung Malim in Perak.
Billions of ringgit have since gone into making the government’s dream of a “national car” a reality. Proton did make headway at first, and its Saga model was a best seller that topped the market for many years.
Proton was the king of the road until 1996 when the second national car maker, three-year-old Perusahaan Otomobil Kedua Sdn Bhd (Perodua), took over the best-seller spot.
After several ups and downs since then, Proton now is said to be seeking up to 3 billion ringgit. The fresh funding is said to be for yet another business transformation plan that will involve introducing new models to the marketplace, including an electric car.
The company first went to the International Trade & Industry Ministry (Miti) for the funding, but its request was turned down because it could not justify why it needed so much money from the government.
The second step was to go to the national oil and gas company, Petronas, and again it failed to obtain anything.
Miti confirmed that Proton had submitted its request for funding but that it had yet to be considered by the relevant authorities. Minister Mustapa Mohamed has described the proposal as “a work in progress”.
For the ministry, any request is subject to availability of funds, and a thorough cost-benefit analysis must be done. Any company, ministry officials say, can seek tax incentives, research and development grants and training grants.
But Proton has vehemently denied that it sought funds, even in the form of incentives or subsidies.
The company has struggled to develop new models that appeal to the Malaysian driving public, and has been in the red for several years as a result. For a while it pursued a foreign partner, with Volkswagen emerging as the favourite. However, the German automaker gave up in frustration.
The government, meanwhile, for years resisted attempts to liberalise the automobile industry as it wanted to protect Proton. But the more isolated Malaysia’s position became, the stronger Thailand’s automotive industry grew, while Indonesia started to make big strides as well.
Finally in 2011 the company was sold to DRB-Hicom by the state investment agency Khazanah Nasional Bhd and delisted in May 2012 from the stock exchange.
Under DRB-Hicom, Proton has managed to introduce new models but none that have taken the marketplace by storm.
Proton’s CEO also resigned recently on his second attempt, after shareholders persuaded him to stay on earlier. The carmaker has an acting CEO now.
Meanwhile, the company needs to bring to market new designs and for that it will need to invest more in R&D. There were reports suggesting that Proton had committed to 3.8 billion ringgit in investment through 2017, but even this has been denied by the company.
In comparison, rival Perodua has committed RM1.8 billion until 2015 to stay ahead of the competition.
So it is baffling that Proton has denied seeking funds since it knows it needs to invest to stay competitive, notwithstanding its ambitious target of selling 350,000 units by 2018.
Proton’s total unit sales for the three months to Dec 31 (its financial year ends March 31) fell by 29% quarter-on-quarter to 30,117 while its market share dropped to 18.3% compared with 24.8% in the second fiscal quarter.
Analysts were bullish about a possible recovery when sales jumped after the launch of the Saga SV in the second quarter, but the optimism was short-lived as sales fell close to a third in the third quarter.
The poor performance has called into question Proton’s ability to compete under the new National Automotive Policy, which calls for radical (by Malaysian standards) industry liberalisation.
Proton’s losses for the third quarter also pulled down results of DRB-Hicom’s automotive division, which posted a pre-tax loss of RM67.2 million during the quarter. DRB-Hicom overall posted a net profit of RM141.6 million in its third quarter.
Against that backdrop, analysts do not expect Proton to turn around in fiscal 2015 as originally expected, though the launch of a global small car by June this year is expected to give Proton a lift.
In comparison, Perodua has held its market share steady at around 30% with a steady stream of new models. Though car sales are expected to be flat this year, Perodua should be able to maintain its market share.
Sustainable profit growth is what Proton needs at this stage and that will take some time. Perhaps Proton should once again look at a courtship with a foreign carmaker to remain a serious contender in the Malaysian auto sector.