KUALA LUMPUR -- Malaysian automaker Proton unveiled on Friday a new sedan to help lift its flagging sales, while analysts said only a foreign partner could ensure the long-term survival of the ambitious national project.
State-led Proton, one of ex-leader Mahathir Mohamad's pet projects to spearhead Malaysia's industrialization drive, survives largely thanks to two decades of tariff protection and the dominance of one market.
Under Mahathir, the company tried to go it alone, but with Prime Minister Abdullah Ahmad Badawi, who succeeded the veteran leader last October, it might have to move faster to cut costs and raise quality standards.
Top government officials recently hinted at a policy change, saying Proton could not depend on tax protection forever and stressing the need for collaboration with other companies.
Abdullah, who surprised investors when he shelved a $3.8 billion rail project that Mahathir gave to a high-profile tycoon in his last days in office, sounded a warning to the firm when he launched the latest car named "Gen-2".
"They have to be very creative, innovative and very professional," he told reporters after the launch. "The company will have to be competitive if it is to survive in the carmaking industry."
Proton's share of the passenger vehicle market fell to 49 percent last year from 60 percent in 2002, recent industry data showed, as foreign rivals such as Honda, Toyota and South Korea's Hyundai Motor cut prices on imports or on cars they produce locally.
Earlier this year, Abdullah extended a tariff concession for Proton while he raised excise duties on cars, a move many in the market criticised.
"To be fair, Proton will sink if the tax concessions are withdrawn immediately, so it has to be steady as she goes," said an auto analyst at a foreign brokerage.
"But it is a good wake-up call for Proton to merge. It needs a partner who is advanced. That is the only way if the government wants to stop handing out huge subsidies year after year."
Led by Chief Executive Tengku Mahaleel Tengku Ariff, Proton is expected this month to post a 50 percent drop in quarterly earnings on slackening demand. Net profit is seen falling to 667 million ringgit ($176 million) in the year to March 31, 2004.
Tengku Mahaleel told reporters he expected annual sales of 50,000 to 80,000 units for the Gen-2, which comes with a 1.6-liter engine and is priced at 55,888 ringgit ($14,700) per unit.
Analysts said it was premature to tell if the Gen-2 sales target could be met, but they expected the car to boost revenue and help stem Proton's sliding share of the market.
"It's an attractive-looking model and should sell well, provided Proton doesn't repeat its past mistakes and disappoint customers with poor-quality fittings," said Ngu Chie Kieng, research head at TA Securities.
State-linked funds and state oil company Petronas [PETR.UL] together own 52 percent of Proton, while Japan's Mitsubishi Motors Corp. and Mitsubishi Corp. have a combined 15.9 percent.
Proton, with a market capitalization of five billion ringgit, saw its shares add 1.7 percent to 9.15 ringgit on Friday.