AT the welcome reception organised by the Federation of Chinese Guilds in Malaysia (Huazhong) for China’s new ambassador Bai Tian late last year, a man unexpectedly stole some of the limelight from the star of the night.
That person was none other than Proton Holdings’ new chief executive officer Dr Li Chunrong, who had come early to get to know the leaders of the Chinese community here.
And when the media spotted him, they surrounded him earnestly to find out the latest developments in Proton.
That little commotion tilted the focus of the night partially onto this Chinese guy, charged with a mission to turn around Malaysia’s national car.
“Dr Li has boldly accepted the challenge to turn Proton around. I was told he took a cut in his overall pay package to come here,” Second Minister of International Trade and Industry Datuk Seri Ong Ka Chuan tells Sunday Star.
The minister had played a key role in wooing China’s Zhejiang Geely Holding Group to become Proton’s strategic partner.
Geely acquired a 49.9% stake in Proton from DRB-Hicom Bhd last June. Along with the Proton shares, Geely also completed the purchase of a 51% stake in Lotus Cars last September.
According to Ong, Li’s bonus at Geely would be paid according to the group’s profitability. In the first half of 2017, Geely’s net profit jumped 128% to 4.34 billion yuan (RM2.8bil).
But as Proton and Lotus are loss-making carmakers, Dr Li had to forego the bonus incentive in his Malaysian adventure. However, this was no deterrent.
Nor was the unsavoury fact that the Malaysian Government had injected over RM15bil into Proton over the past 34 years, and that Proton was down with heavy losses and burdened with debts.
During the reception to welcome Bai Tian, investors from China were also excited to meet Dr Li.
“Dr Li came here with a mission: to revive Malaysia’s national car, not just any carmaker. This mission covers not just his own commitment to turn around Proton, but also the dream of China,” says Datuk Keith Li Zhongping, president of the China Entrepreneurs Association here.
“Everybody is watching Dr Li. He is under huge pressure. From what I have observed, he is very fast in his thoughts and actions, and has been working very hard.
“Proton has to succeed and become a model for other Malaysia-China joint ventures.”
Turning around Proton could not scare Dr Li, as Geely had been involved in a much bigger and more expensive exercise when it was turning around Volvo.
Geely acquired Swedish carmaker Volvo Cars from Ford in 2010. After investments of US$10bil (RM38.92bil) in developing models, new technologies and building assembly plants in China and Sweden, Volvo recorded an operating profit of US$1.25bil (RM4.86bil) in 2016.
“My job is not to look at the past, but I will work day and night to make sure Proton is strongly successful,” declared Dr Li on Sept 29 at a media conference to announce his appointment as Proton CEO.
He seemed fully aware that Proton’s many past failures to turn around has invited more scepticism than anticipation.
But Dr Li, who was headhunted by Geely to come to Kuala Lumpur, was all geared up to charge ahead.
Few people know Dr Li personally, but most are aware that he is academically qualified and possesses the relevant experience. Most importantly, he has the backing of Geely and the Malaysian Government.
Dr Li graduated from Huazhong University of Science and Technology with a bachelor’s degree in electrical automation, followed by a master’s degree in industrial engineering and management.
He also pursued a second master’s degree in business at the renowned Massachusetts Institute of Technology in the United States.
After completing his studies at MIT, Dr Li returned to Huazhong University to earn a PhD in management engineering.
Dr Li started his career with state-owned Dongfeng Motor Corporation in 1987. During his tenure there, he was involved in the development of Dongfeng’s own brand and joint ventures with Peugeot, Honda, Nissan, Kia and Cummins.
In 2007, he set up Dongfeng Passenger Vehicle Company and became its CEO. His efforts in establishing the company’s design, branding, development and production systems laid the foundation for the automobile manufacturing company’s success.
When Dr Li served as executive vice-president of Dongfeng Honda Engine Company, he was handpicked by Geely to spearhead Proton’s transformation.
On Sept 29, Dr Li promised to outline a roadmap for Proton within 10 weeks of his appointment, and he delivered.
In December, the anticipated 10-year business plan to turn around Proton and grow it into a regional player was on the table for all stakeholders to scrutinise.
The plan to turn Proton around “as soon as practisable”, which has been shown to Sunday Star, includes retaking local market leadership and becoming one of the top three carmakers in South-East Asia.
Aggressive business targets have been set. Proton aims to introduce three new car models, upgrade four current models and cut the total cost by 30%.
Proton also plans to grab 30% of local market share and 10% of Asean market share. Exports are to account for 25-30% of its annual sales.
In volume projection, car output is to hit 200,000 units in 2020, above 300,000 in 2023 and 400,000 in 2027.
The national carmaker – which used to be a market leader – sold only 70,991 units of cars in 2017, accounting for only 12.3% of local market share.
Ian Yoong, an investment adviser to Chinese businesses, tells Sunday Star he is now positive about Proton’s future.
“Proton will be Geely’s platform to penetrate the Asean auto market. Dr Li is a veteran in the auto industry and more importantly, he has shown that he has the will and determination to implement much needed changes,” adds Yoong, a former investment banker with CIMB.
Economist Lee Heng Guie concurs with Yoong.
“There is new hope for Proton following the entry of Geely, but tough challenges remain. Dr Li will have to make bold but unpopular decisions to put Proton on the right track.”
“The overarching issues are not only related to local vendors and component manufacturers, but also the state’s preparedness to re-engineer Proton’s business model,” adds Lee, who is executive director of the Socio-economic Research Centre.
In fact, the new management under Dr Li is feeling the heat from some groups after introducing several tough measures.
Last Monday, the Malaysian Association of Malay Vehicle Importers and Traders president Zainuddin Abdul Rahman accused Proton’s new management of discriminating against bumiputra distributors, following a Proton directive to all distributors to upgrade Proton sales centres from 1S (sales only) to 3S centres (sales, service and spare parts).
Urging political intervention from Putrajaya, Zainuddin claimed that bumiputra vendors may be forced to close shop within six months as 85% of them are in the 1S category.
Another bold directive from Dr Li to reduce Proton’s cost of production also caught attention as it will hit bumiputras.
Proton parts suppliers have been directed to reduce their prices by about 20-30%, as they have been selling components at 30% above regional market prices.
It is unsure how the Federal Government would react, but the statement made by Prime Minister Datuk Seri Najib Tun Razak on Feb 3 when launching the National Automotive Cluster @ Proton City in Tanjung Malim might be able to offer some assurance to Geely.
Najib told the media then: “The decision to choose Geely (as strategic partner) is correct as the company produces 1.5 million vehicles annually, owns Volvo, has high technology and is willing to transfer technology to Proton’s engineers.
“If we remain with the old mentality, we may not survive the keen competition.”
He had stated that the Proton’s past problems were due to an economic model that focused on patriotism rather than global ambitions.
“There has been too much political interference in Proton’s administration. We will not allow Proton to sink.
“Proton requires the Government’s support in its recovery and my administration will restore it,” declared Najib.
Urban planner and transport expert Goh Bok Yen believes Dr Li is putting Proton on the right track with the latest measures.
Goh tells Sunday Star: “Over-emphasis on bumiputra participation and over-regulation will cause Proton to be uncompetitive under current dynamics.
“If you look at the measures from a positive aspect, Proton’s new management is transforming the bumiputra enterprises, forcing them to catch up and compete in the auto industry.”
Yoong says: “It is not difficult for Proton to reduce cost by 15-20% as its new management has the will and the backing of the Prime Minister to do so.
“Proton and the Government are aware that this could very well be the last chance for the business to turn around and become viable.”
Regarding criticism of Dr Li, minister Ong says: “This is the right guy for the job. If he leaves for whatever reason, I don’t know who will dare come in to revamp Proton.”
Indeed, mindful of local concerns, Dr Li’s business plan spells out localisation targets so that local enterprises will benefit from the transformation of Proton.
According to the plan, about 80% of Proton’s components and services are to be sourced locally after four years.
However, the plan also makes it clear that there will be no compromise in the normal conduct of business: vendors must place strong emphasis on quality, cost and reliability.
As the 10-year plan states, the first three years “is the most critical period for Proton to turn around” and currently, there is company-wide effort to achieve this objective.
Proton has also started work on improving quality, which is crucial in winning back consumer confidence and widening its reach to all communities in Malaysia.
Late last year, car quality was improved by 30% to 50% using a stringent system aligned to the international standard of Volvo cars. Proton plans to achieve the same quality standard as Geely cars by end-2018.
The quality enhancement has attracted the attention of the Federation of Hokkien Associations in Malaysia, which has asked for a group discount for its members, totalling more than 100,000 people.
Geely has also acted to instil confidence in Proton. Last December, top car dealers were invited to China to view Geely’s modern sales network and the high-end technology employed in the making of Geely-Volvo cars.
To optimise investments, Proton’s focus will be directed to productivity, quality and cost competitiveness, as well as enhancing brand value, says the plan.
If Proton is allowed to grow and expand according to its new business plan, Malaysia will benefit greatly.
Proton’s new plant in Tanjung Malim is expected to create 50,000 jobs. Once its sale volume hits 400,000 cars, the company will bring in revenue of more than RM24bil, according to Ong.
As Proton wants to focus its production in Tanjung Malim, the Government is allocating 1,500 acres of land to develop a high technology automotive hub in Perak.
“Once this technology park is up and running, Malaysia could produce RM24bil worth of auto parts and electronic products. It could also generate another 100,000 jobs,” says Ong.