Proton's survival plan

  • Business
  • Saturday, 12 Apr 2003

THE moment is nigh. National car maker Perusahaan Otomobil Nasional Bhd (Proton), which for long had enjoyed the exclusive pricing allure in the country's automotive industry, needs to get set to take on a brutally competitive market once the barriers come down.  

Proton chieftain Tengku Tan Sri Mahaleel Tengku Ariff, in his typical robust style, shrugs off the threat. But he was keen to talk to the media on Proton's strengths and strategy to rev up sales in a broader universe.  

In a lengthy two-hour session with the press, he outlined a four-pronged strategy to ensure Proton's profits can be sustained post-Afta (Asean Free Trade Area), while enabling it to emerge a competitive player in the industry.  

They include cost reduction in developing and manufacturing engine to enable price competitiveness, offering small to high-end vehicles of superior quality, setting up a large distribution network and expansion into newer markets namely China, Africa and South America.  

And of course, this will all be done with customer satisfaction and retention in mind. 

Mahaleel says one market Proton is keen to tap and fast, is the small car segment in which second national car maker Perusahaan Otomobil Kedua Bhd (Perodua) is presently enjoying brisk sales. 

New models are likely to be the centrepiece of Proton's strategy to compete, a move its foreign rivals have wasted little time taking to capture a bigger market share even ahead of Afta.  

Mahaleel makes a promise that Proton will have a new make every year and will offer them at competitive prices. To do so, however, bringing down production cost is crucial. 

“If you don't get your engine cost correct (30 per cent of total cost stems from engine), you cannot sell your car cheaply. The Waja is already cost-competitive but newer models will be benchmarked against Korean cars. However, the technology we apply will be far superior to the Koreans,'' he boasts. 

The company will soon offer its very own Campro engine after over 1,000 engineers have worked on the engine that was conceptualised three years ago.  

Its technology partner for the project is wholly-owned Britain-based Lotus Cars.  

Mahaleel says there are two systems – the “spot on” 1.3 litre Campro engine and 1.6 litre which needs some calibration.  

When the model will land in the showrooms or hit the streets, however, is anybody's guess and Mahaleel is not telling, preferring instead to whet car buyers' appetite with the anticipation.  

Proton has also created the world's first adaptable platform that, following board approval, can now sell to car manufacturers. 

Worth noting is Proton's move to the new manufacturing plant at Proton City in Tanjong Malim towards the end of the year. The “state of the art'' plant will produce the Campro engine and all new Proton models and will have a production capacity of 300,000 units a year.  

As it stands now, all models are manufactured at Proton's Shah Alam plant, which has a capacity to make 240,000 units a year.  

Playing a crucial role in this equation is Proton's wholly-owned distributor Proton Edar that will have to polish up on customer and after sales services.  

Proton is now also better able to exert control and assess the demands of buyers via Proton Edar that, following the signing of the Memorandum of Association with Edaran Otomobil Nasional Bhd (EON), will be sole distributor of all Proton cars.  

EON, under the agreement, has ceased to be distributor of national cars and instead has assumed the role of super dealer.  

Mahaleel says: “Previously we could not get access to all the buyers of Proton cars so we could not work on customer retention programmes''.  

Even so, it remains difficult to predict or assess the shape or landscape of the auto industry in future.  

One thing remains clear – it will be an uphill drive for Proton, which for over 15 years has enjoyed the top position in the domestic car industry, much owing to the privileges of a protected market which allowed it to ratchet up sales year after year.  

Since its inception, the national carmaker has introduced eight new models and various variants. These are the Iswara, Wira, Perdana, Satria, Putra, Juara, Waja and Arena.  

Proton also sells its cars in 50 countries in five continents. Britain and Australia are big markets for Proton.  

In an ever-competitive environment, no one doubts that marketing virtuosos with new, quality and attractively priced cars are likely to take the lead.  

In this respect, KIA and Hyundai who have turned aggressive of late are already beginning to make a small impact. On the other hand, Toyota recently launched its 1.5 litre model to compete with Proton.  

“Proton needs desperately to reduce the price of its cars because it does not quite have the brand power that say Nissan and Toyota command.  

“As such, we believe the pricing of new models will be about 20 per cent lower than existing ones,” says an analyst. 

While few doubt that Proton cars in 2004 and beyond will be of better quality and more competitively priced, most seem to agree that holding on to its dominant 60 per cent market share position is going to be an arduous task. 

Even so, Mahaleel has expressed that Proton will not take the predictable route of tying up with foreign players given that it already has such links with Renault, Daimler Chrysler and Lotus.  

What it would be keen to do, however, is to work with foreign carmakers to assemble cars for them in Malaysia that will create an additional revenue generator. 

In an Afta regime, Asean is not the only market Proton has set its eyes on.  

China is a big market and Proton has not wasted time securing a licence to sell commercial vehicles namely its Arena model in the country. It does not stop here. Proton is now looking to get a licence to sell passenger cars in China too. 

Plans are afoot to set up an assembly plant in Guangzhou, which will initially produce 30,000 to 50,000 units with the ultimate target of 100,000 units for the enormous market. 

Proton wants to set up a plant in North Africa; wants to revisit the Americas, particularly South America and markets of Brazil and Argentina are sure targets.  

In Iran it has a plant that produced 300 units last year and would produce 10,000 units this year.  

Analysts favour Proton's strategy to go abroad.  

“Going abroad is good and these are markets where the non-national car makers have no strong presence. If Proton can take away some market share, it would be good.  

“The strategy to go overseas and set up plants is really to compensate for the loss of market share domestically and that would ensure earnings will not fall,'' the analyst says. 

A redefining moment for Proton and EON


Proton's survival plan

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