Proton hopes new auto policy can spur growth

KUALA LUMPUR: Proton Holdings Bhd hopes that the country’s soon-to-be announced automotive policy will take into account what has been invested by automakers so far and how it can help spur the local economy through more economic spin-offs. 

The authorities must also carefully weigh whether Malaysia should establish itself as an engineering, designing and manufacturing hub or should it be just an assembly hub, said Proton’s chief executive officer (CEO) Tengku Tan Sri Mahaleel Tengku Ariff. 

The type of technology being used and size of investment so far should be also factored in when decisions are made on incentives for carmakers. 

These are crucial issues that must be addressed quickly for Malaysia’s automobile industry to move forward, Tengku Mahaleel said in an interview. 

He cited the examples of major automobile-producing countries like Japan and South Korea, which laid down rules to ensure their domestic automobile industries continued to have a strong footing. 

He said policymakers, in wanting to liberalise markets under the Asean Free Trade Area (AFTA), should take note that in countries like Japan, foreign automakers only have 10% of the market. 

“In (South) Korea, it’s the same. People protect their markets. Why? In Japan, the Japanese automotive industry employs 5.8 million people and so Japan will never allow the industry to fail,” he stressed. 

But Tengku Mahaleel revealed that foreigners are already close to taking some 40% to 50% of the Malaysian automobile market. 

Tengku Mahaleel: ‘Proton and Perodua are currently operating in a crowded domestic market with more than a dozen assemblers’

Even China is getting into the act to ensure that its automobile industry can grow. 

Under its new automotive policy, China requires foreign investors to set up full-fledged car-making facilities as it aims to become one of the world’s major automobile producers by 2010. 

These are useful lessons that can help Malaysia to better formulate its automotive policy, said Tengku Mahaleel. 

In terms of employment, it is estimated that 100,000 jobs had been created by Proton, its vendors and after sales services in the last 20 years. As for knowledge workers alone, engineers hired by Proton well exceed 1,000 worldwide, with more than half of them based in Malaysia.  

Based on a rough estimate of the employment numbers, it would mean that about half a million people are dependent on the domestic automobile industry. 

Proton and the second national carmaker, Perodua, and their vendors had sunk in RM12bil in investments to get the automobile industry going. More than 300 vendor companies, half of them bumiputera-owned, are supplying parts and components to Proton. 

Given that Proton procures RM3.5bil worth of parts and materials from these vendors annually, the multiplier effect of four times would mean that these purchases would lead to RM14bil flowing into the Malaysian economy, he said. 

“Suppose Proton were to stop buying 100% from Malaysian vendors, that means RM14bil will be taken out from the domestic economy,” Tengku Mahaleel said. 

“Therefore, the new automotive policy has to address the need to encourage car makers and assemblers to buy from local vendors,” he stressed. 

Tengku Mahaleel also contended that Proton and Perodua are currently operating in a crowded domestic market with more than a dozen assemblers. 

With demand standing at 450,000 units annually against a total production capacity of 780,000 units, both companies have been forced to operate in an overcapacity situation. 

Tengku Mahaleel said another point to ponder is that in the last two years, the domestic market was not only opened to Afta players but non-Afta players as well. 

The repercussion to the national cars were “very severe” as competition not only came from Toyotas and Hondas made in Thailand and Indonesia, but South Korean-made Kias, Hyundais and Daewoos, which reaped combined sales of more than 34,800 units last year. 

“If you add up all the models of the Korean cars that came (into the Malaysian market), there are 21 models which are not part of the Afta scheme. 

“In that sense, the biggest winners over the last two years are not the Japanese but Koreans,” said Tengku Mahaleel. 

In responding to criticisms that Proton had been too inward looking and should be looking at export markets instead of just the domestic market, Tengku Mahaleel said Proton would step up its export drive this year. 

To ensure that this would be smoothly executed, he said Proton would audit the performance of its vendors twice annually. 

It has engaged TUV, a German quality consultant company, which conducts quality checks on makes like Mercedez-Benz, BMW, Audi and Volkswagen, to ensure that its vendors are up to the mark. 

Vendors who slacken and fall into TUV’s poorest ranking may no longer be given contracts. – Bernama  

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