Now that Southeast Asia is preparing to eliminate trade barriers, one might expect local manufacturers such as Proton to fade away. But Proton plans to put up a fight. Facing increased competition, the feisty Malaysian automaker is moving aggressively to expand exports and launch production outside its home market.
The company is pursuing production ventures in the Philippines, Vietnam and China. In India, Proton has formed an alliance with Hindustan Motors, and it is working on a production venture in Thailand. Moreover, Proton is beginning to design its own vehicles. In September, it will unveil the Waja, a car based on the Mitsubishi Carisma.
This is exciting for an auto company that is only 17 years old. But not everything has gone smoothly. In the Philippines, its joint venture built only 1,500 vehicles before Proton halted production in a dispute with its partner. In Vietnam, a joint venture with Mitsubishi will not produce small cars until the country's economy improves. And in China, Proton acquired a factory for a complete knockdown program but has to win government approval.
Proton also has signed an agreement with Hindustan Motors to assemble 3,000 cars a year in India. 'It's a quicker, less costly way for us to get into the market,' said Proton CEO Tengku Datuk Paduka Mahaleel. 'If costs and quality from their plant near Madras prove to be right, we might even export cars from India.'
In 1983, Proton took shape when Mitsubishi Motors formed a partnership with the Malaysian government to start a national car company. Proton's first model was the Saga, a car based on the Mitsubishi Lancer. Mitsubishi expected Proton would export vehicles after a couple of decades. Instead, less than one year after it began production, Proton began exporting cars to Bangladesh, Cyprus and Malta. Over the next 15 years, it would export to 52 countries, including the United Kingdom, Germany, France, Russia and Australia.
When it enters a new market, Proton must get permission from Mitsubishi, which retains a 16 percent share of the company. 'It is natural that Proton would want to export at some time ... it is OK for them to compete [with us],' Mitsubishi Motors President Katsuhiko Kawasoe said.
It is hard to think of Proton as a serious competitive threat to Mitsubishi. With exports of 16,400 units last year, Proton has not shaken Mitsubishi's market dominance in Southeast Asia. But the Japanese automaker has not encouraged Proton's export ambitions. The Japanese automaker was especially unhappy when Proton tried to enter the United States market in 1988. That year, Global Motors Inc. signed on as a distributor, thinking that Proton products would go well with the Yugos it was selling in the United States. Global Motors expected to take half of the Proton factory's annual output. But before a single car was sold, Global went bankrupt, and Proton's hopes of entering the world's largest market were quietly forgotten.
With competition in Southeast Asia about to increase, Proton is working to boost its image. 'We don't want to be known as a maker of cheap, ordinary cars but as a company with a high level of design and engineering competence,' Mahaleel said. His second goal is to change the public perception of Proton products as simple and unexciting. To do so, he introduced a high-performance niche vehicle, the Lotus-tuned Satria hatchback. In Australia - one of Proton's top five markets - the company spent $2.2 million to promote it last year during a road show called the Proton World Tour. The Satria 'got people wondering if Proton was the same company that was making those ordinary sedans they had seen all along,' Mahaleel said. 'They simply could not believe that a Malaysian company could make such a car.'
But Proton lacks the marketing power to remake its image. In Europe, the company spends $4 million a year on advertising, a small fraction of the budgets allocated by Daewoo and Kia, which occupy the same market space. An aging product lineup also has hampered export plans. In the mid-1990s, Proton realized its models soon would have trouble passing safety and emissions regulations in many countries. 'We could re-engineer them, but that would be a short-term solution,' Mahaleel said.
Instead, the company decided to develop a new car. The company spent $263 million to develop the Waja, which will go on sale in September. The Waja is based on the Mitsubishi Carisma, but Proton has declared it to be an 'indigenous design' and has announced that it will not pay royalties to Mitsubishi. Whether or not it is truly indigenous, the Waja is important. The car meets European safety regulations that take effect in 2003. Moreover, the Waja's modular design will allow Proton to slash production costs. Mahaleel said he will save at least $110 million in foreign-bought parts over the life of the model. And when Proton introduces its own engine, 95 percent of the Waja's components will be made in Malaysia.
For bigger automakers, the Waja most likely would be just another model in the product lineup. But Proton is fighting for its long-term survival. Under a new regional trade treaty, Malaysia has agreed to cut tariffs on imported vehicles from other Association of Southeast Asian Nations to less than 5 percent. Current tariffs range from 140 to 300 percent. The agreement set 2003 as its target date, but Malaysia has asked for a two-year extension to give its battered auto industry time to recover from the recent economic crisis. With or without the extension, the treaty will have a huge impact on Proton. With the aid of high import duties, Proton sold 155,720 vehicles last year, accounting for 54 percent of total vehicle sales in Malaysia. Analysts say Proton's market share could be cut by half, which explains the company's efforts to boost sales outside of Malaysia.
The fear of increased competition has created a sense of urgency within Proton. The company knows it must improve its identity soon or risk being trampled by the automotive giants. 'Our surveys in many markets told us that people were hardly aware of us,' Mahaleel said. 'We don't have the luxury of time like Ford, Toyota and Mercedes.'
You can e-mail free-lance writer Chips Yap at [email protected]