I am taking cue from Rocky here in wishing Proton Happy Birthday.
I love cars, from as as young as I can remember, cars have always had a strong hold on me and as most young boys my dream cars were Italian or German. Ferrari, Lamborghini, Maserati, Alfa Romeo, De Tomaso, Mercedes-Benz, Porsche, BMW, Audi and Volkswagen were names that drew my admiration.
From England cars from Lotus, Aston Martin, Bentley, Rolls Royce, MG and TVR were the stuff of dreams while the Americans showed off what they could do with the Chevrolet Corvette, Pontiac Trans Am and Dodge Charger.
The Saga was acceptable for the 1980's but it stayed too long and Proton became too comfortable on its success and that of the Wira to develop their own models.
I was only 15 when Proton was launched and it was a piece of exciting news but not because it meant that I could buy a Malaysian brand but because it meant that I had a chance to pursue a goal as a car designer or automotive engineer in my own country.
After SPM I applied to study engineering but the JPA told me that we had too many engineers and not enough lawyers and took cue from my less than stellar additional maths result to deny my ambition.
I had no choice but to study law because otherwise it would mean not getting a scholarship.
So my hopes of becoming an automotive engineer was dashed but thankfully I was given the opportunity to become an automotive journalist and apply my love of cars as part of my role.
Mahaleel is a fantastic planner and had a great vision for the company but some accuse it of being tunnel vision
Since 1994 I have observed the company closely and when Tunku Mahaleel Ariff was given the helm, it was a great day for the automotive industry because now we had a car guy running the country's largest car company.
Mahaleel is a fantastic planner and had great vision for the company, he spent money beefing up the company's research and development capabilities and began work on designing our own car from the ground up.
The Auto Industry is highly competitive, massively cost intensive and fast moving, only the biggest and best can survive
He also had the foresight to understand that the future of the car industry lies not just in volume but in building a premium brand and took advantage of their alliance with Lotus to come up with cars that are actually decent to drive.
He began toying with the idea of building the company in the mould of BMW, leveraging on Lotus's ride and handling expertise to give the cars credibility as a driver's car.
The first car that Proton designed on their own was the Waja using a Mitsubishi-derived platform that was improved and altered to suit our own needs. The statistics were impressive, they came up with a chassis that was stiffer and more rigid than many of the competition and when we got behind the wheel, it was actually pretty good to drive.
The Waja was a decent family car, ti had space, practicality and it was even fun to drive but build quality was spotty for the first few years.
Personally I think the Waja has rather peculiar ergonomics, the driver cannot sit upright and be able to see all the dials as they are blocked by the top of the steering wheel
At this point problems with quality were on the rise and at the Malay Mail (Under Fauzi Omar then) had to deal with many Proton-related complaints through the Hotline and of course this did no favours to the company's image.
Proton's mantra then was: We are having problems with our vendors. We gave them a bit of breathing room but after a few years the excuse started to wear thin. I mean you can only blame the vendors for a short period, as the Principal, Proton should whip their vendors into shape or find new ones. Apparently this did not really happen.
I remember an interview with Bob Hall, an old hand in the automotive industry and whose biggest claim to fame was creating the iconic Mazda MX5. He had been hired by Mahaleel in his effort to create more interesting cars that people wanted.
Vendor quality problems and low worker morale plagued Proton in the 1900s and it is only now being seriously addressed
The interview went well until I told Hall that I think Proton is not quite capable of building good quality cars because of their inability to solve the vendor problem and poor workers morale.
He was very angry and began shouting at me. He could not understand why a Malaysian could be so cynical and skeptical of the company's ability to build god quality cars.
I understand his enthusiasm, he has been infected by Mahaleel's charm and I can tell you that Mahaleel had huge reserves of it.
During the launch of the Gen.2 Mahaleel called me and took me on a ride in the new car around their test track. I had become a vocal critic of the company and he wanted to set me straight.
He demonstrated the car's good handling qualities and rather impressive ride comfort. I told him I though the dashboard centre console is rubbish because the buttons are too small and the circular display hard to read in daylight.
Mahaleel talked about the difficulties he was having with some vendors and how they would give him grief through their political connections.
He tried to change things but there were limits as to what he could do, at least that was what he said and I had no reason to disbelieve him because Mahaleel is not someone who gives in to bullying. He has a strong character and got what he wanted most of the time.
Some people laughed when Mahaleel told the world that he wanted to turn Proton into a sort of budget BMW brand, a company that builds enjoyable driver's car. I think it was a great idea but he had little time and Proton had committed to hatchback models which was clearly not loved by the market and things went downhill for him from then on.Mahaleel's vision of Proton as a manufacturer of enthusiast cars is typical of car guys heading car companies, just take a look at Bernd Pischestreider at BMW and later VW. Their desire to build cars for enthusiasts can sometime distract them from market realities.
Recently VW realised that the cars built under Pischestreider were too good and too expensive to build, they were over engineered beyond their station.
At Proton, Mahaleel was adamant that the company should focus their efforts on the enthusiast and they gave birth to the Gen.2. Personally I think the Gen.2 is swell looking car and it handled beautifully for a car in that price category. But it should not have been the launch model for their second generation platform (thus the Gen.2 name).
Malaysia, like most of Asia, is sedan country, hatchbacks don't do very well here. This is why the Gen.2 tanked. Most people complained about the lack of rear headroom and there is merit in their whining but there was also another problem. The new Campro engine was not set up for relaxed every day driving.
On the Sepang International Circuit, the car Gen.2's high strung engine was wonderful, it hit the power band at the right places because you always kept the engine at high revs to maintain high speed on the track.
On the road the engine was gutless, it needed at least 3,500rpm before anything happened and as a result the car felt grossly underpowered at normal driving speed.
Mahaleel figured that the peculiarly Malaysian worry of Renault engines was an irrational fear. The fear may have been irrational but it was real and contributed to the car's poor showing.
The Savvy also suffered from its looks. The car stands out in a crowd but few people understood why it looked the way it did - that is to say they thought it was ugly.
The Savvy, another slow seller is also a good driver's car but it had a Renault engine and was not the prettiest car on the lot.
Now you may think that Renault is a fantastic brand, after all they are winning Formula One races so they must know how to build good engines. They do but in Malaysia the brand was poorly represented in the 1990s and that is the image that stuck in people's minds. Folks out of the city hesitated to buy the car and sales tanked.
The Gen.2 has been transformed into the Persona and is now a hot seller while the Savvy has been stretched and widened into the Saga and now has a fat order book. This proves that Mahaleel had got the fundamentals correct but he did not read the market correctly. Of course people may say that hindsight is 20/20 so it is unfair to blame Mahaleel for sticking to his vision of Proton as a premium enthusiast brand.
The Persona and Saga is a good seller but it brings Proton back to square one, as an entry level mass market manufacturer, something that Mahaleel was keen to avoid and he had a very good reason for wanting to move away from being a bottom-feeding volume manufacturer.
Hyundai-Kia climbed the ladder from top ten biggest car manufacturer to being top five in 10 years. They did it because they knew they had no choice. Volume was the name of the game
In order to understand why Mahaleel was keen to move away from this label, we have to look at the recent history of Hyundai-Kia. 10 years ago journalists were invited to Seoul for the company's Vision 21 plan, which is their long term master plan for the 21st century and at they told us in no uncertain terms that the company will become the fifth largest carmaker within a decade.
At that point the world's largest carmaker were
1. General Motors
2. Ford
3. Toyota
4. Daimler Chrysler
5. Volkswagen
6. Fiat
7. Honda
8. Hyundai Kia
Hyundai Kia realised as did Mahaleel, that in order to remain competitive you had two choices, improve your margins or increase your volume.
Each new model costs around US1 billion and most car companies have at least five models in their range while full-range manufacturers may have around 15-20 models. With at least one new model launched a year, companies have to spend at least UD1 bilion in R&D annually. Prestige brands like Mercedes-Benz , BMW and Audi will probably spend double or triple that because they need to ensure higher quality levels and need to develop new features to attract buyers.
In the highly competitive world automotive market, a mass market car company with volume of less than one million cars a year would find itself in trouble, ideally they should be looking at a total volume of around two million cars a year.
This large number is necessary because the cost of developing a totally new model is at least USD 1 billion while top brands like Mercedes-Benz and BMW would spend two or three times that in order to achieve the necessary level of quality and premium specifications.
Given that most companies have a range of between seven to 20 models and a model lifespan of between five and seven years, it means that they need to launch a new model every year. That means spending at least USD 1 billion a year on R&D.
The companies then need to defray the R&D cost to about USD1,000 per car, which means that they have to build at least a million of each model and sell around 200,000 a year. Multiply that with a five-model range, it means selling a million cars a year, at least.
These are obviously grossly simplified numbers but they are a relatively accurate representation of reality.
Proton is lucky if they can sell around 200,000 cars a year, given the Waja- Gen.2/Persona, Savvy/Saga, Satria and Perdana model range, they are selling an average of 50,000 cars per model. Obviously this means that they need to spread their R&D cost over a smaller number of cars sold.
Proton solved this problem through some innovative cost cutting and by taking advantage of the country's low labour cost. The spent around an average RM500 million per new model and less than RM200 million for updates such as the Persona and Saga. They did it on a veritable shoestring budget.
Mahaleel saw that it was difficult for Proton to hit a million cars a year so he decided to go on the premium path and focus on the enthusiast. The reasoning was faultless but what it needed was balance against market realities.
This year Proton looks set to get back in the black but it is far from being globally competitive in terms of cost and quality and the current management has their hands full trying to balance the books and move forward.
I think they need at least another five years to establish the company as a globally viable automotive corporation and the target for a million cars must be in their long range scope. In the short to medium range, they can get away with 200,000 to 400,000 cars a year but this severely limits their growth potential.
In terms of comparison, Subaru is similarly sized and sells about 400,000 cars last year but even they are not able to maintain their independence and are now allied with Toyota, the world's largest carmaker with sales expected to hit 10 million cars this year.
Subaru was the last independent niche manufacturer in Japan. They sell about 400,000 cars a year and they sold some really outstanding cars with much admired all wheel drive technology.
However even Subaru had to tie knots with Toyota to survive. Technical alliance is unavoidable if Proton wants to thrive.
If Proton is to remain at 400,000 units per year in their forseeable future, then it is unlikely they can survive as even premium brands such as Mercedes-Benz, BMW and Audi are selling more than a million cars a year these days. taking into account the level of technology investment needed to remain competitive, Proton will have no choice but to become a million unit company within the next 10 years.
In terms of the company's benefit to the Malaysian economy, i will say that Proton was a good engine for growth in terms of our expertise and industrial capacity. Tun Mahathir himself has pointed out that the company was set up to build our capacity and the automotive sector was chosen as the engine because it requires a wide range of skills to engineer, build and market cars.
However, like many of Mahathir's grand plans, something was lost in its implementation. Proton should have been technically independent five to ten years ago but they started very late. they were content to be resellers of badge-engineered Mitsubishi cars.
Obviously Malaysians had to bear the cost of building Proton through higher import duties for foreign cars as the Government gave Proton room to breathe and grow but obviously it is time to ask the more difficult questions 23 years later.
How long can we continue to protect Proton with tariff barriers, can the company stand on its own in the face of global challenges in the next decade?
Is there a plan to make the company globally competitive and can they share with us the roadmap?
Proton gives hundreds of thousands of Malaysians their livelihood so we do have to act carefully but it also means that we have to act decisively because a company that relies on protectionism is not a viable company.
A company that cannot provide competitively priced and specified products is also not a viable company, not if we want to be plugged into the global market.
At this point, Proton still have markets such as Africa, China, India, the former Soviet Union maybe even South America where it can establish itself through price competitiveness as these markets are still not as demanding when it comes to specifications but they need to move fast as Chinese carmakers are taking huge strides in some of these markets.
Proton should be more aggressive in promoting its association or ownership of Lotus despite concerns that it may dilute the British brand, after all we had paid a lot of money for it, lets make it go to work for us.
I also believe that Proton should be more aggressive in promoting its association or ownership of Lotus. I know that there are concerns that it may dilute the British brand but it is a risk that we should take, after all we have paid good money to acquire the brand and its expertise, we should make full use of it. Proton must be the primary concern and Lotus must play the supporting role, even if it is a sacrificial role.
Proton still has time but that time is very limited and the current management needs to make bold moves to expand the company's market reach and expand its product range to give it broader appeal.
As the auto industry finds itself at a technological crossroads in terms of it's propulsion technology as dictated by double concern of depleting oil reserves and environmental concern, Proton needs to quickly asses its future path and start planning for models that will give them an edge.
Perhaps a technical alliance is unavoidable, if so then Proton needs to build the value centres to attract the right kind of partners and I firmly believe that it should be our cost advantage in terms of engineering. Proton must expand its engineering capabilities and offer it to partners.
We are quite capable of undertaking the mechanical engineering work at a good price while the technology partners can concentrate on higher technology work.
The Proton that exists in five years time must not be recognisable as the same company that exists today, Proton needs to take a huge leap if it wants to earn the respect and admiration of Malaysians. Long enough has it been the brand that Malaysians settle for when they can afford nothing else.
