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ASIAN CASE RESEARCH JOURNAL, VOL.

16, issue 2, 347377 (2012)

acrj
This case was prepared by
Jane Terpstra Tong, Robert
H. Terpstra of Monash
University Sunway Campus,
Malaysia and Lim Ngat Chin
of The Nottingham University of Malaysia Campus as
a basis for classroom discussion rather than to illustrate
either effective or ineffective
handling of an administrative
or business situation.
Please send all correspondence to Jane Terpstra Tong,
Department of Management,
Monash University Sunway Campus, Jalan Lagoon
Selatan, Bandar Sunway,
46150 Selangor Darul Ehsan,
Malaysia. E-mail: jane.tong@
monash.edu

Proton: Its Rise, Fall, and


Future Prospects
For Dato Haji Syed Zainal Abidin Tahir (Syed Zainal,
hereafter), Managing Director of Proton, recent headlines
such as Auto Sector Faces Numerous Challenges and
European Carmakers Zoom in1 were simply reminders
of the challenges his company faced. Proton had been
troubled by its declining share of the domestic auto market
(Exhibit 1) and consequent dwindling profits and margins.
Without taking into account the governments R&D grant
in 2007/2008, the company suffered three straight years of
losses from 2007 to 2010. Its finances recovered a little in
2009/2010, thanks to the governments cash for clunkers
incentive programme, a MYR143 million (USD48 million)2
R&D grant from the government, and some improvement
in sales. However, its net profit margin barely reached
3% very low by industry standards and most of its
performance measures lagged behind those of the industry
leaders (Exhibits 2 and 3). The stock price of Protons listed
parent, Proton Holdings Berhad (Proton Holdings Limited),
had been substantially lower than its net asset value for
several years (Exhibit 3). Because of its low market to book
ratio and the heavy government subsidies paid to Proton, Mr.
Syed Zainal was under tremendous pressure to turn around
Protons performance. Adding further pressure, the changing
institutional environment had exposed Protons inability to
compete. Since 2005 when the government committed to
1Starbizweek,

19 March 2011. SBW20-21.


of year exchange rates were used in this case. We use USD1 = MYR3.464 for
2008, 3.424 for 2009, 3.083 for 2010 and 3.000 for 2011.
2End

2012 by World Scientific Publishing Co.

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reducing import tariffs under the ASEAN Free Trade Area


(AFTA) agreement, the external institutional environment
became very unfavourable to Proton. Although the government continued to protect Proton by providing grants and
subsidies, Proton did not stop losing its market share to
competitors, most notably to the second national car maker,
Perodua. The competition in the domestic market had become
stiffer as it was close to saturation. Further growth had to
depend on overseas markets, in which Proton had failed to
establish a firm foothold. The governments latest National
Automotive Policy3, issued in late 2009, did relieve some
of Syed Zainals worries as the liberalisation of the sector
was limited. Nonetheless, he was aware that the company
desperately needed to improve its quality and efficiency; but
what strategy should he adopt?

Malaysias Profile
Malaysia is a small country that has been independent from
British rule for around 50 years. It has a land size of about
330 thousand square kilometres, equivalent to the size of
Norway, Vietnam, or the state of New Mexico in the USA.
It is only a quarter of the size of its northern neighbour,
Thailand. About half of its land mass lies on the Malay
Peninsula and the other half on the island of Borneo, across
the South China Sea. It is a middle-income country with a
GDP per capita of US$7,775 in 2010, but a per capita GDP
of US$14,800 on a PPP basis. It has a very young population
of around 28 million, with a median age of 25. In terms of
religion, Malaysia is considered a moderate Islamic country
that allows other religions to be practised. Over 60% of
Malaysians are Muslims, about 19% Buddhists, 9% Christians,
and 6% Hindus. Politically, Malaysia adopts a federal parliamentary democracy together with a constitutional monarchy.
A sultan, equivalent to the local king, acts as the chief of all
3Ministry

of International Trade and Industry. (2009). Review of National


Automotive Policy. Retrieved March 31, 2011, from http://www.maa.org.my/pdf/
MEDIA_RELEASE_NAP_Media_281009.pdf

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proton: Its rise, fall, and future prospects 349

Islamic and religious affairs in 9 of the 13 states. Every five


years, one of the nine sultans takes turn to serve as the king
for the whole country. Similar to the UK, the king is only a
figurehead and the actual power rests with the prime minister
and his cabinet. Since Malaysias independence in 1957, the
government has been led by the same coalition political party,
Barisan National, which in turn is controlled by the United
Malays National Organization (UMNO). Except for the 2008
general elections, Barisan National has never encountered any
serious threat from the opposition parties. UMNO has always
been the de facto government.
Malaysians are mainly from four ethnic backgrounds:
Malay (50%), Chinese (24%), Indigenous (11%), and Indian
(7%). The majority of Malays, together with the indigenous
population, are grouped as bumiputera (literally son of the
soil; or bumi in short). The bumiputera enjoy privileges that
are not available to other ethnic groups under the countrys
National Economy Policy, commonly known as the NEP
(1970), and the subsequent National Development Policy
(1990). These privileges were established as compensation to
the bumiputera, who were viewed as a marginalised ethnic
group under British colonial rule and were thus deprived of
opportunities. Similar to affirmative action policies adopted
in other countries, the policies aimed to reverse the long-term
deprivation and gave the bumiputera easier access to resources
and opportunities. The bumiputera were given preferential
treatment and, in many cases, exclusive rights over business
licences, education admissions and scholarships, and government contracts and employment4. Through these preferential
programmes, the UMNO-led government aimed to redistribute the countrys wealth, which was largely controlled by
the Chinese prior to 1970, and to lift the majority of Malay
out of poverty. Forty years after the NEP, the affirmative
action policies remain intact despite challenges claiming
that the goals of the NEP have been reached, and that
its continuation only benefits a small group of politically
connected parties. The recent 2010 National Economic Model
4See Chin, J. (2009). The Malaysian Chinese dilemma: The never ending policy (NEP).
Chinese Southern Diaspora Studies, Vol. 3, pp. 167182.

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did not impose any changes on the NEP programmes. Some


of the key NEP industrial directives are listed in Exhibit 5.

The Malaysian Automotive Industry


Market Demand
Between mid-1980s and 2010, Malaysians reliance on cars
increased to a level that resembled Americans. The sale of
more than 600,000 vehicles (Exhibit 4) in 2010 was quite
remarkable considering Malaysias population of only 28
million. In 2010, Malaysia had the largest passenger car
market in ASEAN5, closely followed by the rapidly growing
Indonesian market (Exhibit 9). On average, one out of every
four Malaysians owned a vehicle6. Compared with other
countries, Malaysia had the third highest vehicle ownership
in the world after the USA and Luxembourg, which were
much richer countries (Exhibit 10).
The popularity of private vehicles as a means of
transportation often surprised visitors to Kuala Lumpur,
Malaysias capital city. Seeing networks of modern highways,
high-speed trains, and abundant automobiles, they found
it hard to believe that Malaysia was still considered a
developing country. The similarity to the US lifestyle offered
by this small developing country was even more surprising. It
was not difficult to spot American drive-through restaurants
and gigantic parking lots at grocery stores, shopping malls
and other major public facilities.
Vehicle ownership began to gain popularity with the
launch of the countrys National Car Project in the early
1980s by the former Prime Minister, Tun Dr. Mahathir
bin Mohammad. Mahathir, also known as the Father of
Proton7. Mahathir adopted Proton as his pet project. During
5Including trucks and other commercial vehicles, Thailand had the biggest auto
market in 2010, followed by Indonesia (Exhibit 9).
6Business Monitor International (2009). Malaysia Autos Report Q4 2009. Business
Monitor International Ltd., p. 6.
7Ellis, E. (2006, July 6). Protonomics. Fortune Magazine. Retrieved May 17, 2010, from
http://money.cnn.com/magazines/fortune/fortune_archive/2006/07/10/8380925/
index.htm

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proton: Its rise, fall, and future prospects 351

his 22-year reign from 1981 to 2003, he had a very handson role in Protons operations. His involvement included
selecting joint venture partners, hiring and firing members
of the board, and deciding strategic directions. At the time
of writing, Mahathir still served as an advisor to the board of
Proton and continued to have a substantial influence on the
companys strategy8. The National Car Project was one of
several mega-projects implemented by the Mahathir government in an effort to jump-start the industrialisation of
Malaysia. In addition to manufacturing automobiles, the
government also invested in other heavy industries, such as
steel plants, cement factories and oil refineries. Together,
these projects were part of the Industrial Master Plan
that aimed to facilitate Malaysias leap into the league of
industrialised nations.
In addition to the National Car Project, there were
other push and pull factors that fuelled the demand for
automobiles. The first was a heavily subsidised gasoline
supply. Malaysia was a significant net oil exporter and
had the third largest oil reserves in the Asia-Pacific region
after China and India9. This natural endowment allowed
the government to subsidise Malaysians consumption of
gasoline10, which made it possible for low-income citizens
to own and operate a vehicle. The government subsidy on
gasoline varied between 20 and 30 Malaysian sen (about
710 US cents) per litre, or about 1015% of the retail price11.
Another factor was the decision, perhaps implicit, to permit
sporadic rather than concentrated urban planning, which
meant long driving distances between city centres that were
not connected by a mass public transportation system. The
countrys light rail transit (LRT) system was only available in
the Klang Valley, also known as the greater Kuala Lumpur
area. Third, the government made it easy and cheap to
8See Karim, F.N. (2006, April 8). Strategic alliance must benefit industry: Dr. M.
Business Times. Kuala Lumpur, p. 44.
9http://www.eia.doe.gov/cabs/Malaysia/Full.html
10Ramasamy, M. (2010, March 4). Malaysia delays plan for new gasoline subsidy
system (update 1). Bloomberg Business Week. Retrieved May 11, 2010 from http://
www.businessweek.com/news/2010-03-04/malaysia-delays-plan-for-new-gasolinesubsidy-system-update1-.html
11Teh, E.H. (2010, May 25). Subsidy cuts to boost economy. The Star, N17.

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obtain loans for buying national brand cars. Car loans in


2010 were available for less than 23% per annum; very
low by both local and international standards. Finally, the
Malaysian government had invested heavily in the countrys
highway networks. Its highway system connected all major
inland cities and neighbouring countries, from Thailand in
the north to Singapore in the south. These developments,
taken together, encouraged Malaysians to acquire private
cars or motorbikes as their means of transport, while at the
same time making it less efficient and economical to adopt
large-scale mass transportation or railway systems. As these
factors had evolved over time, life in Kuala Lumpur differed
significantly from other Asian capitals, in which people were
more likely to live close to one another in high rises and
relied on public transportation for their daily commute.

Key Stakeholders
The development of Malaysias automotive sector was led
by five major groups of stakeholders. The first key group
was the parts and components manufacturers, with about
350 companies making parts and components for vehicles
and about 120 for motorcycles12. The development of the
component industry was an intended by-product of the
national car project. In 2008, the total sales of this industry
amounted to MYR6.37 billion (or USD1.84 billion)13. The
output from this group was important to the industry as
it provided supplies to two other stakeholder groups in
the value chain, namely, the auto manufacturers and the
assemblers. The proportion of locally produced parts in
the national-brand cars varied from 60 to 90%, whereas for
domestically assembled foreign cars the proportion was
between 40 and 60%. The second stakeholder group consisted
of Motosikal dan Enjin Nasional Sdn Bhd (MODENAS),
12The

German Chamber Network International. Market watch 2010, The Malaysian


automotive and supplier industry. Retrieved September 6, 2010, from http://
malaysia.ahk.de/fileadmin/user_upload/Dokumente/Sektorreports/Market_
Watch_2010/Automotive_2010__ENG_.pdf
13ibid.

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proton: Its rise, fall, and future prospects 353

launched as part of the national motorcycle project in 1996,


and Malaysia Truck and Bus Sdn Bhd (currently known
as Isuzu Hicom Malaysia Sdn Bhd), established in 1997 to
produce commercial and heavy vehicles. The third group of
stakeholders consisted of assemblers. Altogether, there were
ten motor vehicle assemblers of both passenger and commercial vehicles (i.e., Assembly Services/Toyota, Honda Malaysia,
Hicom-Automotive, DRB-Hicom Defense Technologies, Inokom,
Oriental Assemblers, Naza Automotive Manufacturing, Scania
Malaysia, Swedish Motor Assemblies and Tan Chong Motor
Assemblers) and eight motorcycle assemblers (e.g., Honda,
Yamaha, Suzuki, Naza and Kawasaki).
Motor vehicle dealers represented the fourth group of
stakeholders. In 2005, there were 1,978 car dealers and 158
motorcycle dealers14. Included in this stakeholder group was
a special category of dealers unique to Malaysia the
Approved Permit (AP) holders. AP holders were allowed
by law to import new or used CBU (completely built up)
vehicles into the country. There were two types of AP holders
open versus franchise. Open APs, previously given free
to selected bumiputera entrepreneurs, allowed the holder to
import a vehicle of any brand and model from overseas with
each permit. A franchise AP, given to licensed bumiputera
distributors, was a blanket approval that allowed the holder
to import a prescribed brand and make of vehicle within a
period of time. The total number of vehicles that could be
imported was limited to 10% of the total industry volume
in the previous year. For example, in 2010 the country sold
about 600,000 vehicles, thus a maximum of around 60,000
foreign vehicles was allowed to be imported under the AP
system in 2011. Because only bumiputera individuals and
companies15 were allowed to apply for an import licence,
and APs were in high demand in the used vehicle import
14Prime

Ministers Department. (2005, October 19). National automotive policy


framework. Retrieved September 6, 2010, from http://www.maa.org.my/pdf/
National%20Automotive%20Policy%20Framework.pdf
15Bumiputera companies were those in which all shareholders and 51% or more
staff members and board members are bumiputera. See Annex B: Definition of
bumiputera company. Retrieved December 14, 2009, from http://www.miti.gov.
my/cms/content.jsp?id=com.tms.cms.article.Article_65a16b80-c0a81573-6359635981dbca47&curpage=tt

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market, there was even a secondary market for APs. In 2009,


each open AP could be re-sold for about MYR40,000 (or
USD11,681)16.
Altogether, in 2008, the automobile manufacturing sector employed about 50,000 people and contributed to about
5% of the countrys GDP (Exhibit 9).

Protection from the Government


As measured by the number of annual new registrations,
the domestic auto market, grew by about 200% between
1990 and 2008. In 2008, the total sales were 548,115 units, of
which 17,305 (or 3.2%) were imported vehicles. Malaysias
passenger car market had been dominated by the two
national carmakers, Proton and Perodua. At their peak, the
two national carmakers together accounted for 76% of all
domestic auto sales. This duopoly had been supported by
government protection. However, such protection had been
reduced in the previous few years, which had led to Proton
losing market share. In 2010, their combined sales declined
to 57.2% of the market. The drop in the domestic carmakers
market share could be explained partly by the changes in the
tariff structure. Before 2005, all imported vehicles were subject
to an import tariff of 60% to 300% of the vehicles value,
varying by engine size. The import tariff was dropped when
Malaysia began its commitment to reducing import tariffs
under AFTA. At the time of writing, all imported vehicles,
whether CBU or completely knocked-down (CKD), were subject to two categories of tariffs import duty and excise
duty. The import duty on CBUs was set at 0% for imports
from ASEAN and 30% from MFN (most-favoured nations),
but for locally assembled CKDs, it was 10%. All vehicles,
domestic and foreign, had to pay an excise tax. Depending
on the engine size and type of vehicle, the excise duty ranged
from 60% for a van with an engine below 1,500 c.c. to 105%
for any vehicle above 2,500 c.c. As a result, both locally
assembled and imported foreign vehicles benefited from
16Idris,

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I. (2009, October 31). Coming to grips with APs. Starbizweek, SBW20-21.

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proton: Its rise, fall, and future prospects 355

Malaysias reduction of import duty. In addition to these two


duties, buyers had to pay a 10% sales tax. The details of the
latest duty charges are given in Exhibit 8.
Foreign vehicles were therefore quite expensive in
Malaysia. For a new imported CBU or a locally assembled
German or Japanese CKD vehicle from a non-ASEAN country, the retail price was usually more than double the price
of the same vehicle sold in a tariff-free country, such as
the USA. In a country with a median monthly income of
MYR2,850 (USD950), foreign vehicles were a luxury17. Hence,
vehicles made by Proton and Perodua, benefiting from a
50% reduction in excise tax and other government rebates,
were the peoples choice18. However, this choice of cheaper
local vehicles came with a costly trade-off against quality
and safety. The absence of stiff competition had encouraged
Proton to keep on producing outdated designs that neglected
basic safety features such as airbags and anti-lock braking
systems for most of its domestic models19.
Although new foreign vehicles were expensive, a
minor- ity of Malaysians still preferred foreign vehicles
because of their reliable performance and quality. Instead
of buying new locally assembled foreign vehicles, they
opted to purchase not-so-old used imports. This resulted
in a large number of used car importers, especially in the
Greater Kuala Lumpur area. The prices of used imports
were not low. Used car prices were still double the price
of similar used cars sold elsewhere. These high prices,
coupled with the relatively low duties, provided high
profit margins for the importers. The relatively low duties
were the result of the governments method for assessing
the value of used vehicles. Although new foreign vehicle
values were easily identified through international dealers
brochures or websites, there was no reliable mechanism or
17http://www.asiaviews.org/index.php?option=com_content&view=article&id=28835
:malaysias-balanced-growth-better-than-singapores-higher-growth&catid=3:column-acommentaries&Itemid=10
18Mohmad, J. and Kiggundu, A.T. (2007). The rise of the private car in Kuala
Lumpur Malaysia: Assessing the policy option. IATSS Research, 31(1), 6977.
19Protons Persona was the official car for cabinet ministers in Malaysia until early
2011. These vehicles were not equipped with airbags. See Onn, F.C. (May 1, 2011)
Burden or catalyst? The Star, F38-9.

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provision for determining the market values for imported


used vehicles. The government had to rely on the used
car dealers to provide the value. Taking advantage of the
opportunity, used car dealers registered very low prices for
their imports, thus avoiding high duties. For the used car
dealers, even after factoring in the hefty fee of MYR40,000
for an AP, the used car import business was still considered
very lucrative. The used car import system had a political
dimension. The original intention in setting up the AP system
was to encourage bumiputera to participate in the used car
dealership business. However, it turned out that most APs
were actually re-sold to non-bumiputera auto dealers, who
dominated the industry. It seemed that most AP holders
would rather sell their licence than operate the business
themselves. This type of rent-seeking behaviour invited a
lot of criticism from consumers and policymakers, including
Mahathir himself 20. The 2009 National Automotive Policy was
an attempt to address this rent-seeking behaviour. Under the
new policy, open APs would be phased out by 2015 and
franchise APs by 2020. A price list of used vehicles would
be gazetted to eliminate the opportunity for under-reporting.
Additionally, with effect from 2010, all APs were subject to a
MYR10,000 (USD3,300) fee rather than being given out free.
All these measures were aimed at phasing out the AP system
within ten years. However, it was anticipated that the adverse
effects on the used car importers would be seen much sooner.
Without open APs, most used car dealers would not be able
to operate.
With regards to the ten thousand ringgit charge for
each AP, the policy explicitly stipulated that the funds
col-lected would be used to assist bumiputera companies
venturing into the automotive trade and other businesses21.
This was consistent with other economic policies that aimed
to promote the interests of bumiputera.

20Othman, A.F. (2010, June 17). Free AP for genuine motor traders Dr. Mahathir.
Business Times. Retrieved April 1, 2011 from http://www.btimes.com.my/Current_
News/BTIMES/articles/mahaafp/Article.
21Ministry of International Trade and Industry (28 October 2009). Media Release:
Review of National Automotive Policy.

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proton: Its rise, fall, and future prospects 357

To conclude, Malaysias domestic carmakers, Proton


and Perodua, still enjoyed some protection from the government although the level had been reduced in previous
few years. Government protection continued to prevent a
level playing field. The choice of vehicles was limited for
the majority of consumers, whose incomes were low by
international standards. When the 2009 National Automotive
Policy was fully implemented, Malaysians would lose the
choice to buy used imports. Therefore, domestic brands
should continue to dominate the mass market.

Protons Development: A Historical


Perspective
The automotive industry in Malaysia, prior to the launch of
Proton, was almost non-existent. Automobiles were either
imported or assembled locally with imported CKD (completely
knocked down) kits. The first automaker in Malaysia was
a Swedish-Malaysian automobile assembler that began
assembling their CKD kits for the local market in 1967.
In 1981, two years after Mahathir became Prime Minister,
Proton was formed under the National Car Project. Proton
was the Malay acronym for Perusahaan Otomobil Nasional
(in English, National Automobile Enterprise). It was the key
business of its parent, Proton Holdings Berhad, a public
company listed on Bursa Malaysia (formerly, the Kuala
Lumpur Stock Exchange). To launch a national car project,
Malaysia, like other pre-industrialised countries, had to solve
the general problems of weak technological capabilities and
insufficient management talent. The favoured strategy was
to form alliances to acquire the much-needed technology
and management skills. The first Proton partner was Japans
Mitsubishi Motor Corporation, considered at that time to be
the weakest automaker in Japan22. The choice of a Japanese
partner was obvious, as Mahathir adopted the Japanese
development model of heavy government involvement for
22Wad,

P. (2009). The automobile industry of Southeast Asia: Malaysia and Thailand.


Journal of the Asia Pacific Economy, 14(2), 172193.

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Malaysia. However, the reason for choosing Mitsubishi was


not clear. At the very least, it was known that the decision
did not go through a competitive bidding process23. Together,
Proton and Mitsubishi formed an equity joint venture, in
which the latter had 30% ownership while providing 70%
capital in the form of yen loans24. In 1985, the joint venture
rolled out its first automobile, the Saga, a four-door saloon
with a choice of 1.3 or 1.5 litre engines. Saga was a simpler model of the Lancer, a well-established and popular
Mitsubishi model for the mass market. While other compact
models (e.g., Savvy and Satria) were launched to satisfy the
local appetite for small cars, the Saga and its variants (e.g.,
Persona and Waja) remained Protons flagship models. Since
2008, the new Sagas had been equipped with home-produced
engines developed by Proton and its subsidiary, the UKbased Lotus, which was acquired in 1996. In 2009, Proton
began producing a multi-purpose vehicle (MPV) called the
Exora, thus diversifying its passenger car line-up.
The decision to form a joint venture with Mitsubishi
helped to reduce R&D costs and allowed Proton to manufacture vehicles under its own brand within two years. Proton
also sought to accelerate its learning curve through technology transfers with its partner. Over the years of partnership
with Mitsubishi, Proton and its alliances developed the
capability for producing some of the components, partially
reducing its reliance on Mitsubishi and other foreign auto
component makers. In addition to producing components,
Proton began designing its own models and in 2001 it
launched the Waja, its first home-designed model. In 2004,
in partnership with Lotus, it launched the Gen-2, a modern
hatchback with homemade Campro engines.
The joint venture with Mitsubishi continued until 2004,
when Mitsubishi suffered financial difficulties at home and
decided to sell off its stake in Proton. Eventually, Mitsubishis
entire stake in Proton was purchased by the Malaysian
23Wain, B. (2009). Malaysian Maverick: Mahathir Mohammad in Turbulent Times.
Palgrave Macmillan.
24Simpson, M., Sykes, G. and Abdullah, A. (1998). Case study: Transitory JIT at
Proton Cars Malaysia. International Journal of Physical Distribution and Logistics
Management, 28(2), 121.

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proton: Its rise, fall, and future prospects 359

government, bringing the states effective ownership to nearly


two-thirds of Protons shares: 42.74% by Khazanah Nasional
Berhad, the governments investment agency; 10.72% by the
Employees Provident Fund Board, the nations only retirement fund manager for both private and public sectors; and
7.85% by Petronas, a wholly state-owned company. Thus,
Proton was undoubtedly a state-owned automaker. With the
government as the majority shareholder, it was not surprising
that Mr. Syed Zainal proclaimed, Im a Malaysian first and
a businessman secondIm not a civil servant, but part of
my job is a social and national obligation I have to adhere
to25. This nationalist orientation was evident from the role
that Proton played in carrying out the governments NEP
programmes. Under Protons vendor system, only bumiputera
suppliers could sell auto parts to Proton, even if their prices
were 50% higher than Proton could have paid elsewhere26.
These suppliers were also given grants to learn the trade and
master the technology. This was how Mahathirs vision of
creating a full-fledged and self-sufficient auto industry was
implemented.
An adverse effect of Mitsubishis withdrawal was the
deteriorating quality of Proton products. Customers perceived
the quality of Proton vehicles to be better when they were
still produced in partnership with Mitsubishi. They also felt
that vehicles produced by Protons domestic rival, Perodua,
were of higher quality and they were even willing to pay a
premium for similar models produced by Perodua27. Protons
1996 acquisition of Lotus, the British sports car company,
was viewed with scepticism and did not appear to improve
Protons image28. Commentators questioned the value of
acquiring an established but sleeping brand known for its
sports cars when Protons products were meant for the mass

25Ellis,

ibid.
P. (2008, July 15). Protons vendor network needs discussion. Retrieved
April 2, 2011 from http://www.btimes.com.my/Current_News/BTIMES/articles/
mahaafp/Article.
27The comparison of quality of Proton and Perodua was widely discussed in local
motor blogs. See http://www.motortrader.com.my/forums/topic.asp?TOPIC_ID=587
and http://forum.lowyat.net/topic/1076443 (Retrieved 2010, May 21).
28Anonymous (2007, Nov. 17). Business: Lost compass Proton. The Economist, p. 79.
26Tan,

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market29. In addition, Lotus had been losing money ever since


and had yet to provide any profit to its parent, Proton.
Protons involvement in the UK market went well
beyond its investment in Lotus. It entered the UK market
in 1989 where its sales peaked at 15,000 in 1992, and fell
steadily to 1,518 in 2008. The decline was attributed to the
British demand for higher quality and safety standards,
local competition and inadequate after-sales service. Proton
had also tried selling its cars in other developed countries
including Singapore and Australia, where its major customers
were rental car companies. Overall, Protons exports had
been small. In 2009/2010, its total exports were below 25,000
units, although there was some optimism over the market in
developing countries, particularly China, India and Iraq.
To expand its sales internationally and domestically,
Proton knew it needed to improve its technology. After
the divestment of stake by Mitsubishi Motors, Proton held
several rounds of discussion with global automotive original
equipment manufacturers (OEMs), including General Motors
(GM), Peugeot and, more recently, Volkswagen AG. The
discussions went nowhere as none of the global automakers
were willing to form alliances on the terms stipulated by
Proton. Eventually, Mitsubishi agreed to form another alliance
with Proton, but only on a project basis.

Birth of Perodua: Competition for Proton


Malaysias second national automaker was Perodua
(Perusahaan Otomobil Kedua Sdn Bhd, or Second Automobile
Manufacturer Private Limited). It began in 1993 as a joint
venture with Malaysian and Japanese partners. The two
largest shareholders were the government-linked UMW
Corporation Berhad, with 38% of the shares, and Japans
Daihatsu Motor Co. Ltd., a subsidiary of Toyota, with 20%
of the shares30. Since its launch, Perodua had been viewed
29Johari,

S. (2011, January 24). Lotus limbers for lift-off. Business Times. Retrieved
April 2, 2011 from http://www.btimes.com.my/articles/lot23f/Article/
30Official website of Perodua, www.umw.com.my

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proton: Its rise, fall, and future prospects 361

as a strong competitor for Proton. Over the years, it eroded


Protons market share (Exhibit 1). In 1995, two years after
its inception, Peroduas share of the domestic passenger
market was 17% compared to Protons 61%31. But, since 2006,
Peroduas total vehicle sales had exceeded those of Proton. In
2010, it led the market with a 31.2% share, followed by Proton
(26.0%), UMW Toyota (15.1%), Honda Malaysia (7.4%), and
Nissan (5.7%).
Peroduas strategy was not to compete directly with
Proton. It produced sub-compact passenger vehicles with
an engine size of around 1,000 c.c., whereas Proton focused
on the 1,300 to 1,600 c.c. market. The sub-compact market,
however, had experienced the highest growth rate in
Malaysia over the past two decades. In 2006, Peroduas
Myvi, with engine sizes from 1,000 to 1,300 c.c., outsold
Protons subcompact model Savvy by more than three to
one. Peroduas strength stemmed from its partnership with
Daihatsu, which allowed Perodua to apply a lean manufacturing system and just-in-time inventory system; the
well-known practices of Daihatus parent, Toyota. Peroduas
success, combined with exclusive dealerships for Lexus and
other Toyota vehicles, made UMW Corp. the countrys market
leader in auto sales32.
Because of its status as a national automaker, Perodua
enjoyed the same protection and advantages given by the
government to Proton. For example, during the global financial crisis in the latter half of 2009, the Malaysian government
launched its version of the cash for clunkers program
by providing a cash rebate of MYR5,000 (or USD1,420) for
Malaysians to trade in their 10-year old or older vehicles for
either Perodua or Proton products,33 but not for other brands.
Like Proton, Perodua also benefited from the 50% excise tax

31Total passenger vehicle sales in 1995 were 229,626, of which Proton sold 140,647
and Perodua sold 39,906. Mahidin, M.U. and Kanageswary, R. (2004). The development
of the automotive industry and the road ahead. Department of Statistics Malaysia,
p. 13.
32Company website.
33Yunos, S. (2009, Nov. 13). RM5,000 rebate stopped. Malay Mail. Retrieved May 10,
2010, from http://www.mmail.com.my/content/18800-rm5,000-rebate-stopped

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362 ACRJ

rebate, allowing them a much lower tax burden compared


with foreign carmakers.

External Developments and Their


Implications for Proton
AFTA was a trade agreement among ASEAN member
countries and its implementation had important implications
for Protons future strategy and performance. ASEAN countries shared the belief that an economically integrated SouthEast Asia would bring prosperity to the region as a whole,
and that establishing a free-trade area was an important prerequisite for further economic integration and the eventual
goal of monetary union. AFTA was created in 1992, under
the Singapore Declaration signed by the original six ASEAN
members (Brunei, Indonesia, Malaysia, Philippines, Singapore
and Thailand; or ASEAN-6). The goal was to establish a
completely free-trade area within ASEAN countries within
15 years through the Common Effective Preferential Tariff
(CEPT) Scheme. The specific objectives of AFTA were to
increase ASEANs competitive advantage as a production
base in the world market, first by eliminating, within ASEAN,
tariff and non-tariff barriers for products on the CEPT
inclusion list, and second by attracting more foreign direct
investment to ASEAN countries34.
Little progress was made in the first ten years after
1992. A turning point was finally reached on January 1, 2003,
when the ASEAN-6 set import tariffs at between 0 and 5%
for almost all manufactured goods and processed agricultural
products from other member countries. By 2010, the six member countries were expected to completely eliminate the tariffs
on goods manufactured by other member countries. The most
recent members of ASEAN, Cambodia, Myanmar, Laos and

34Agreement

on the Common Effective Preferential Tariff (CEPT) Scheme for the


ASEAN Free Trade Area. Official website of Association of Southeast Asian Nations
(ASEAN). Retrieved May 16, 2010, from http://www.asean.org/12375.htm. Also see
The ASEAN Secretariat. ASEAN Free Trade Area (AFTA): Towards a single ASEAN
market.

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proton: Its rise, fall, and future prospects 363

Vietnam (CMLV countries), also signed the AFTA agreement


on entering ASEAN, but were permitted to honour their
commitment at a later stage.
As a member of ASEAN-6, and also as a majority
shareholder of Proton and the indirect owner of Perodua, the
Malaysian government faced a dilemma over how to fulfil its
commitment to ASEAN while ensuring the competiveness
of the two national automakers. In an effort to do both,
Malaysia requested a two-year deferral of the tariff reduction
from ASEAN. However, Malaysia was able to begin its commitment after only a one-year delay by lowering its import
tariff on automobiles as stipulated by AFTA, while at the
same time increasing excise duty from zero to over 60%
(Exhibit 8). The overall effective tax rate on imported CBUs or
CKDs did drop, but not as much as was intended by AFTA.
The further integration of the ASEAN economies
posed both opportunities and threats for Proton. The overall
ASEAN automobile market had been growing and the total
sales reached about 2.5 million units in 2010 (Exhibit 9).
Among the 10 ASEAN countries, Thailand had the biggest
domestic market at 800,357 vehicles, followed by Indonesia
(764,710) and Malaysia (605,156). Thailand was also the
biggest production base in the region for various foreign
brands. Its auto output was close to 1.7 million, recovering
from the previous years low of 1 million. Its production also
exceeded the combined sales in Indonesia and Malaysia. The
year-on-year growth of the ASEAN auto markets in 2010
was spectacular at 32%. In terms of the potential growth in
domestic consumption, Thailand and Indonesia seemed to
be more promising because of their larger populations and
lower penetration (Exhibits 9 and 10). Among the three, the
Indonesian market was the most attractive, outgrowing both
Thailand and Malaysia in 2010. The three markets differed
in their preferred type of vehicle; the Thais tended to buy
pick-ups, the Indonesians preferred three-row MPVs, and
Malaysians favoured sub-compact cars. It was not surprising
that Thailand specialised in commercial vehicles, Malaysia in
passenger cars and Indonesia in non-car passenger vehicles,
although this situation could change given the rapid growth
in Indonesia and its recent pro-FDI initiatives.

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364 ACRJ

Historically, the most formidable automakers in the


ASEAN region had been the Japanese (Exhibit 11). In 2008,
out of 2 million new vehicles sold in ASEAN countries, about
86%, or some 1.72 million units, were produced by Japanese
automakers or their local joint venture partners35. Among
the South-East Asian countries that had an automotive
industry, Malaysia was the only one that had its own national
brands. Other ASEAN countries had chosen to develop
their auto industry by providing incentives to attract foreign
automakers to manufacture in their countries. For example,
Thailand, dubbed as the Detroit of Asia, changed its automotive policy and began introducing FDI incentives after
the Asian currency crisis. More recently, in 2008 it started to
offer eight-year corporate tax breaks and duty-free machinery
and equipment imports to companies that invested in
manufacturing small eco-cars36. This contributed to Thailands
quest to establish itself as the powerhouse of automobile
manufacturing in the ASEAN region. In 2009, the Thai auto
sector as a whole contributed 10% of the nations GDP and
employed 150,000 people37. Vehicles and auto parts were
Thailands second largest export. Its CBU export sales were
the largest among the ASEAN countries, reaching 895,855 in
2010 and exceeding its domestic sales.
As Protons 2011 annual report stated, the ASEAN
market presented tough competition: in ASEAN, customers
were spoilt for choice with the overwhelming introduction
of new models38. Thus, it was not surprising that Protons
exports went mostly to non-ASEAN countries. In 2009/2010,
its major export markets were the UK, Australia, the Middle
East, China and Iraq.

35Japanese

Automobile Manufacturers Association, Inc. (2009). Powering up Hand in


Hand 2009: Partnership in the Auto Industry between ASEAN and Japan, p. 11. Retrieved
May 3, 2010, from http://www.jama-english.jp/asia/publications/pamphlets/hand_
in_hand_2009.pdf
36Mark, B. (2009, September 1). ASEAN automotive market review. Management
Briefing. Retrieved May 5, 2010, from http://www.just-auto.com
37Sosothikul, P. (2010, April 19). Thai auto industry setting the pace in Asia. Bangkok
Post. Retrieved May 21, 2010, from http://www.bangkokpost.com/news/asia/36296/
thai-auto-industry-setting-the-pace-in-asia
38Proton Holding Bhd. (2011). Annual Report, p. 94.

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proton: Its rise, fall, and future prospects 365

Developments within Malaysia and Protons


Continued Struggles to Find a Partner
Several other developments within Malaysia had important
implications for Proton. The 2009 National Automotive Policy
in Malaysia, effective from 2010, allowed foreign carmakers
to establish 100% owned facilities to produce passenger
vehicles with an engine capacity of 1,800 c.c. and above, and
priced above MYR150,000 (approximately USD50,000). In
other words, there were no longer any restrictions on equity
ownership for foreign automakers producing expensive
passenger vehicles in Malaysia. Furthermore, from June 2011,
imports of used automotive parts and components would no
longer be allowed. The policy also called for the provision of
incentives for the local assembly and manufacture of hybrid
and electric vehicles and their components, with a temporary
exemption of excise tax on such vehicles of 2,000 c.c. or
below, in the first half of 2011. Toyota and Honda seized this
incentive and their hybrid vehicles sold well. To follow this
changing trend in customer preference, Proton announced
that it would launch a hybrid model in about two years time.
After its fallout with Proton, Volkswagen AG entered
an agreement with DRB-HICOM to produce CKD Volkswagen
vehicles. Proton, meanwhile, renewed its collaboration with
Mitsubishi Motors to produce a new executive model, Inspira,
with 1.8L to 2.0L engines. But in reality, Inspira was simply
another rebadged Mitsubishi Lancer, demonstrating Protons
lack of depth and continued dependence on Mitsubishi
for engineering and product design39. Responding to the
repeated failures to form partnerships with global OEMs, the
Malaysian government began to promote the idea of merging
Proton and Perodua. However, this idea did not seem to be
welcomed by Perodua40.

39Tan,

P. Retrieved April 1, 2011 from http://paultan.org/2010/11/10/protoninspira-launch


40Mahalingam, E. (2011, March, 21) Questions for the auto industry. The Star, B4.

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366 ACRJ

Protons Future Strategies amidst


Challenges
The development of the ASEAN-India and ASEAN-China
bilateral free-trade agreements offer both optimism and
concern to Mr. Syed Zainal, the M.D. of Proton. The two freetrade agreements are expected to generate opportunities to
increase automotive trade between the ASEAN, Indian and
Chinese auto industries. Eventually, Chinese and Indian made
automobiles and components will be allowed to be exported
to ASEAN countries with zero import tariffs, and vice versa.
In addition, Toyota has indicated that it plans to make India
its small car hub, and Chinas Chery and Geely, two privately
owned, young and energetic Chinese carmakers, have set
their sights on the ASEAN market. All of these suggest new
opportunities for Proton, such as potential exports to India
and China, but also the threat of increasing competition in
both domestic and regional markets.
It seems clear that the initial withdrawal of Mitsubishi
signalled the beginning of a downturn for Proton. Furthermore,
in 2010, its major production facilities in Tanjung Malim
operated at only 50% capacity. Although the facilities are
attractive to foreign automakers, the failed partnership discussions with Volkswagen AG, Peugeot and General Motors
indicate that foreign partners prefer ownership control in any
joint venture with Proton, which Proton seems to be reluctant
to concede41. Given the saturation of the domestic automotive
market, Proton must focus on increasing its share of the
domestic market and expanding its export market, although
its export sales have also been weak. Amidst all these constraints, threats and opportunities, what strategies should
Proton adopt to reverse its declining market share and ensure
long term survival?

41Ellis,

S0218927512500150.indd 366

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proton: Its rise, fall, and future prospects 367

1
Exhibit 1: Market share of ProtonExhibit
and Perodua
in Malaysia (%) 19952010
Market Share of Proton and Perodua in Malaysia (%) 19952010
Market share %
60
50
40
PROTON

30

PERODUA
20
10
0

Year

Source: Malaysian Automotive Association (MAA); Business Monitor International. Malaysia


Autos Report, various issues.

Source: Malaysian Automotive Association (MAA); Business Monitor International. Malaysia Autos Report, various issues.

23

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S0218927512500150.indd 368

Proton

1.10

1.41

4.11%

6.70

Total Asset
Turnover

Equity
Multiplier**

Return on Equity

Inventory
Turnover

5.11

3.40%

1.35

0.77

3.28%

$1,671

2008

3.68

12.18%

1.37

0.67

12.19%

$1,304

2007

9.17

6.20%

2.69

0.74

3.13%

$92,210

2010

8.05

3.42%

2.95

0.85

1.37%

$99,833

2008

9.37

13.21%

2.69

0.92

5.34%

$93,919

2007

#Assumes an exchange rate of RM3.2 per $US.


# Assumes an exchange rate of RM3.2 per $US
##Assumes an exchange rate of Y94.56 per $US.
##Assumes an exchange rate of Y94.56 per $US
*Data
yearsending
ending
on March
*Dataare
arefor
for fiscal
fiscal years
on March
31st 31st.
**Equity
Total
Assets/Shareholders
andtoisevaluate
used to
the use
of financial leverage.
**EquityMultiplier
Multiplier ==Total
Assets/Shareholders
Equity Equity
and is used
theevaluate
use of financial
leverage

10.04

13.20%

2.78

0.95

5.00%

$120,028

Honda*
2009

Source:
Authors
based
on company
reports
and Compustat
Source:
Authors computation
computation based
on company
annualannual
reports and
Compustat
Database Database.

4.67

5.97%

1.40

0.92

4.63%

2.66%

Net Margin

2009
$1,901

2010

$2,571#

Total Sales
(US$ million)

Year

10.60

2.05%

2.93

0.64

$200,406
##
1.11%

2010

10.33

4.34%

2.89

0.67

2.13%

$208,995

2009

2008

11.04

14.47%

2.73

0.81

6.53%

$262,394

Toyota*

10.42

13.89%

2.75

0.78

6.87%

$202,864

2007

ComparisonExhibit
of Key2:Financial
and
Ratios
and
Proton
and
otherand
Leading
AsianAsian
Automobile
in 20072010
ComparisonData
of Key
Financial
Data
Ratios
- Proton
other Leading
AutomobileManufacturers
Manufacturers in 2007-2010

Exhibit 2

24

368 ACRJ

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proton: Its rise, fall, and future prospects 369

Exhibit 3
ExhibitFinancial
3 SelectedData
financial
Data and
Ratios ofHoldings
Proton Holdings
for theYears
fiscal years
2006
Selected
and Ratios
of Proton
Berhad Berhad
for the Fiscal
2006 to
2010
March 31st.
Money
amounts
are
expressed
in
MYR
'000)
to 2010 (Ending(Ending
March 31st. Money amounts are expressed in MYR 000)
Data/Ratio
Revenues
EBIT
EBIT/Revenues
Net income
Net income/Revenue
Total assets
Total assets turnover (times)
Current assets
Fixed assets
Fixed asset turnover
Cash & equivalenta
Tax recoverable
Trade, div. & other receivables; dues
from subsidiaries, asso. companies &
jointly controlled cos.
Average collection period (days)
Inventory, net
Inventory turnover (times)
Current liabilities
Current ratio (times)
A/P & other dues to subsidiaries, asso.
Cos. & jointly controlled cos. As a % of
current liabilities
Short term borrowings
Total debt to total assets
Equity multiplier (times)
Return on equity (ROE)
Return on assets (ROA)
NOPAT (net operating profit after tax)b
Operating assetsc
NOPAT/Operating assets
Expenditure for fixed assets, intangible
assets and other long term assetsd
EPS (MYR)
Shares outstanding (thousands)
% of shares owned by top two
shareholders
Dividend per share (MYR)
(Dividend) Payout ratio
Stock price on March 31st (MYR)e
KLSE Index on March 31st
Book value of equity per share (MYR)

2010

2009

2008

2007

2006

8,226,859
272,946
3.32%
218,932
2.66%
7,505,152
1.10
3,880,614
3,587,607
2.29
1,661,765
25,301
966,336

6,518,754
(304,792)
-4.68%
(301,806)
-4.63%
7,098,898
0.92
3,404,586
3,657,900
1.78
929,163
160,610
919,732

5,621,594
162,252
2.89%
184,551
3.28%
7,293,348
0.77
3,446,084
3,847,264
1.46
1,246,832
114,479
984,487

4,687,330
(582,588)
-12.43%
(618,129)
-13.19%
6,946,767
0.67
3,165,540
3,781,227
1.24
699,923
176,048
1,015,957

7,796,932
61,863
0.79%
46,394
0.60%
8,312,775
0.94
4,430,973
3,881,802
2.01
1,797,947
51,491
1,192,530

43
1,227,212
6.70
2,072,773
1.87
83.66%

51
1,395,081
4.67
1,883,599
1.81
73.34%

64
1,100,286
5.11
1,639,180
2.10
92.97%

79
1,273,612
3.68
1,533,788
2.06
99.36%

56
1,389,005
5.61
2,341,063
1.89
55.63%

142,236
28.94%
1.41
4.11%
2.92%
296,137
2,624,418
11.28%
417,037

306,039
28.75%
1.40
-5.97%
-4.25%
(357,002)
2,827,111
-12.63%
700,413

113,606
25.67%
1.35
3.40%
2.53%
101,046
3,174,477
3.18%
565,824

164,426
26.95%
1.37
-12.18%
-8.90%
(559,016)
3,179,439
na
499,358

804,766
22.52%
1.29
0.72%
0.56%
33,026
3,312,947
1.00%
478,451

0.40
549,213

(0.55)
549,213

0.336
549,213

(1.073)
549,213

0.085
549,213

53.46
0.20
50.00%
4.71
1,336
9.70

58.64
0.05
na
1.58
907
9.30

56.27
0
na
3.86
1,222
9.90

50.63
0.05
na
6.65
1,247
9.50

49.25
0.10
117.65%
5.70
927
10.70

Source: Bloomberg; Proton Holdings Berhad. Annual Reports (20062010).

Source: Bloomberg; Proton Holdings Berhad. Annual Reports (2006-2010).

Notes:
a. current investment & bank deposits.
Notes:
b. NOPAT = profit/loss before finance cost - tax.
a.
current investment
bank deposits
c. Operating
assets =&
property,
plant & equipment & prepaid land lease payments.
NOPAT
profit/loss
cost - tax
d.b.As
shown= in
the cashbefore
flow finance
statement.
c. Operating assets = property, plant & equipment & prepaid land lease payments
e. Proton share prices are adjusted for capitalization changes.
d. As shown in the cash flow statement.
e. Proton share prices are adjusted for capitalization changes

S0218927512500150.indd 369

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S0218927512500150.indd 370

224,991
275,615
307,907
137,691
239,647
282,103
327,447
359,934
320,524
380,568
416,692
446,172
442,885
497,459
486,342
543,394

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Sales (units)
Total
44 vehicles
commercial
vehicles
47,235
13,566
69,444
19,729
70,334
26,596
17,641
8,519
26,171
22,729
33,732
27,338
37,623
31,311
42,727
32,293
50,882
34,339
70,948
36,089
97,820
37,804
44,596
33,559
44,291
50,656
50,563
61,562
285,792
364,788
404,837
163,851
288,547
343,173
396,381
434,954
405,745
487,605
552,316
490,768
487,176
548,115
536,905
605,156

Total vehicles
sales
231,280
280,222
337,717
143,756
257,607
295,318
355,863
380,050
327,450
364,852
422,225
377,952
403,245
484,512
447,002
522,568

Total passenger
vehicles

Production (units)
Total
44 vehicles
commercial
vehicles
45,805
11,253
65,751
19,148
77,784
23,192
10,337
7,363
25,898
20,474
37,552
27,235
40,916
31,922
44,046
32,727
65,554
33,642
75,384
31,739
95,662
45,623
96,545
28,551
38,433
46,298
42,267
45,147
-

288,338
260,970
407,347
161,456
303,979
360,105
428,701
456,822
426,646
471,975
563,510
503,048
441,678
530,810
489,269
567,715

Total vehicles
production

26

Note:
Notes:
1. The passenger vehicle industry was reclassified in January 2007 and includes all passenger carrying vehicles, i.e., passenger cars, 4WD/SUVs, window vans and MPV models
1. The
passenger vehicle industry was reclassified in January 2007 and includes all passenger carrying vehicles, i.e., passenger cars, 4WD/SUVs, window
2. Commercial vehicles were also reclassified on 1 January 2007 and includes all trucks, prime movers, pick-ups, panel vans, buses and others
vans and MPV models.
2. Commercial vehicles were also reclassified on 1 January 2007 and includes all trucks, prime movers, pick-ups, panel vans, buses and others.

Source:
Automotive
Association
(MAA).
Retrieved
April
1, 2011 from http://www.maa.org.my/info_summary.htm;
Business
Monitor
Source: Malaysian
Malaysian Automotive
Association
(MAA). Retrieved
April
1, 2011 from
http://www.maa.org.my/info_summary.htm;
Business Monitor International. Malaysia
Autos Report.
Q4, International.
2009
and Q1, 2010.
Malaysia
Autos Report. Q4, 2009 and Q1, 2010.

Total passenger
vehicles

Year

Sales
and4:Production
of Motor
Vehicles
inMalaysia
Malaysia
(units)
19952010
Exhibit
Sales and Production
of Motor
Vehicles in
(units)
1995-2010

Exhibit 4

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proton: Its rise, fall, and future prospects 371

Exhibit 5
Key Industrial Directives Under Malaysias National Economic Policy
1. Foreign companies that apply for licences to operate in Malaysia need to form a partnership
with a bumiputera partner recommended by the Ministry of International Trade and Industry
(MITI).
2. Initial Public Offerings (IPOs) to be listed on the Kuala Lumpur Stock Exchange are required
to set aside a 30% quota to bumiputera investors. The corporate equity should continue to
consist of a minimum of 30% bumiputera equity holders.
3. Under the Industrial Coordination Act (ICA), big companies should employ a minimum of
30% bumiputera and there should be bumiputera among the senior executives.
4. To bid for government contracts, companies should meet the requirement of 51% bumiputera
equity holding.
5. Government-linked companies are required to give preference to bumiputera businessmen
when outsourcing services.
6. Imported cars dealers must obtain approved permits (import licences) for their imports.
However, approved permits are only granted to bumiputera companies that have 100%
bumiputera shareholders.
Source: Chin, J. (2009). The Malaysian Chinese dilemma: The never ending policy (NEP). Chinese Southern Diaspora Studies,
Vol. 3, p/167182.

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372 ACRJ

Exhibit 6
Exhibit 6: Proton Time Line
Proton Time Line
Month/Year

Event

1957

Malaysias independence.

1962

Ford Motor of Malaya was established, providing limited services


including body repair, paint touch-up & wheel changes. This marked the
beginning of Malaysias automobile industry.

1967

The first six assembly plants were established to assemble CKD


(completely knocked-down) vehicles.

Dec. 1967

Swedish Motor Assemblies Sdn. Bhd., the first foreign assembler, began
production.

1981

Dr. Mahathir bin Mohammad became Prime Minister.

1983

Under the National Car Project, Proton (Perusahaan Otomobil


Nasional) was established.

1985

Proton began producing its Saga model jointly with Mitsubishi Motors
Corporation of Japan.

1992

The second national automobile manufacturer PERODUA, was


established.

1992

Proton Holdings Bhd. was listed on the Kuala Lumpur Stock Exchange.

Oct. 1996

Acquired 100% of Lotus Group International Limited, a British


automotive engineering company and a manufacturer of luxury sports
cars.

Dec. 30, 1996

The launch of PUTRA, a two-door coupe, and the 100 millionth car was
produced.

2003

Dr. Mahathir resigned as Prime Minister.

2004

Purchased Italian Agusta motorcycle unit for Euro70 million (MYR510


million).

2004

Launched Gen-2, a hatchback with Lotus modern design and a locally


built engine, the Campro 16V-four pot.

2005

Disposed of Agusta motorcycle unit for the token price of one euro.

2005

Perodua overtook Proton as the biggest domestic automobile


manufacturer, with a 41.6% share of the passenger car market.

20042007

Negotiated with Volkswagen AG of Germany in the hope of forming a


joint venture primarily for technology transfer. However, the negotiations
eventually failed because of irresolvable expectations.

2006

The first National Automotive Policy was issued.

Dec. 2008

Signed a contract for production and development of new models with


Mitsubishi.

Oct. 2009

The second National Automotive Policy was issued.

Source: Compiled by the authors.


Source: Compiled by the authors

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proton: Its rise, fall, and future prospects 373

Exhibit 7
Exhibit 7: Economic
Contribution
of Malaysias
Automotive
Historical
Data
& Forecasts
Economic
Contribution
of Malaysias
Automotive
SectorSector
Historical
Data
& Forecasts
2006

2007

2008

2009

156.20

179.60

214.70

227.00

Contribution to GDP (%)

2.78

5.41

5.13

4.88

Total stock of passenger cars


(CBUs; million)

4.00

3.85

3.70

3.57

Sector employment (000)

46.70

48.20

49.70

51.20

GDP (USD billion)

Source: Business Monitor International. (2009). Malaysia Autos Report Q1, 2010, p. 22.
Source: Business Monitor International. (2009). Malaysia Autos Report Q1, 2010, p.22.

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374 ACRJ

Exhibit 8
Exhibit
Duties
andon
Taxes
on Motor
Vehicles
in Malaysia
at March
2011)
Duties8:and
Taxes
Motor
Vehicles
in Malaysia
(as (as
at March
31,31,
2011)
(A) Motor cars (Including station wagons, sports cars and racing cars)
Engine
CBU
CKD
MSP
capacity (cc)
MFN
ASEAN
MFN
ASEAN
MFN
ASEAN
CEPT
CEPT
CEPT
<1,800
1,800-1,999
2,000-2,499
30%
10%
0%
10%
n/a
0%
Above 2,500

Local Taxes
Excise
Sales Tax
Duty
75%
80%
90%
10%
105%

(B) Four wheel drives


Engine
CBU
capacity (cc)
MFN
ASEAN
CEPT
<1,800
1,800-1,999
30%
0%
2,000-2,499
Above 2,500

Local Taxes
Excise
Sales Tax
Duty
65%
75%
10%
90%
105%

(C) Others (MPVs & Vans)


Engine
CBU
capacity (cc)
MFN
ASEAN
CEPT
<1,500
1,500-1,799
1,800-1,999
30%
0%
2,000-2,499
Above 2,500
(D) Commercial vehicles
Engine
CBU
capacity
MFN
ASEAN
(cc)
CEPT
All
30%
0%

MFN

10%

MFN

CKD
ASEAN
CEPT

0%

CKD
ASEAN
CEPT

NIL

10%

10%

MFN

MSP
ASEAN
CEPT

n.a.

MSP
ASEAN
CEPT

NIL

0%

CKD
ASEAN
CEPT
NIL
0%

MFN

MFN

10%

60%

n.a.

MSP
ASEAN
CEPT
NIL
n.a.

MFN

Local Taxes
Excise
Sales Tax
Duty
65%
75%
90%
105%

0%

Local Taxes
Excise
Sales Tax
Duty
NIL
10%

Source: Malaysian Automotive Association. Retrieved March 31, 2011 from http://www.maa.org.my/info_duty.htm
Source: Malaysian Automotive Association. Retrieved March 31, 2011 from http://www.maa.org.my/info_duty.htm
Notes:
ASEAN
Notes: = Association of Southeast Asian Nations
ASEAN
= Association
of Southeast
Asian
Nations
CEPT
= Common
Effective
Preferential
Tariff
Scheme
CEPT
= Common Effective
CBU
= Completely
built up Preferential Tariff Scheme
CBU= =Completely
Completelyknocked
built up down
CKD
CKD = Completely knocked down
MFN = Most favoured nation
MFN = Most favoured nation
MSP
==
Multi-sourcing
MSP
Multi-sourcingparts
parts
n.a.
=
not
n.a. = notapplicable
applicable

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S0218927512500150.indd 375

1,040
223,235
61,562
109,799
4,618
453,713
53,632
907,599

543,594

58,691

47,273

346,644

58,105

1,608,331

Malaysia

Philippines

Singapore

Thailand

Vietnam

Total

2,515,930

111,737

800,357

51,891

168,490

605,156

764,710

13,589

Total
vehicle sales
in
2010

1,913,098

119,460

548,871

79,503

132,444

536,905

483,550

12,365

Total
vehicle
sales in
2009

32%

6%

46%

35%

27%

13%

58%

10%

Change over
20092010

10,480,946

n/a

1,845,997

8,281

759,849

468,175

7,398,644

n/a

Total sales
of
motorcycles
and scooters
in 2010

1,663,476

56,836

554,387

n/a

33,161

522,568

496,524

n/a

Passenger
vehicles

1,438,694

49,330

1,090,917

n/a

47,316

45,147

205,984

n/a

Commercial
vehicles

3,102,170

106,166

1,645,304

n/a

80,477

567,715

702,508

n/a

Total
vehicles
produced in
2010

2,123,746

107,760

999,378

n/a

62,523

489,269

464,816

n/a

Total
vehicles
produced in
2009

Source: ASEAN Automotive Federation. Retrieved April 1, 2011 from http://www.asean-autofed.com/files/AAF_Statistics_2010.pdf

Source: ASEAN Automotive Federation. Retrieved April 1, 2011 from http://www.asean-autofed.com/files/AAF_Statistics_2010.pdf

Brunei

12,549

Commercial
vehicles

541,475

Passenger
vehicles

Indonesia

Country

Auto
ASEAN
Countries
Exhibit Sales
9: Autoand
Sales Production
and Production in
in ASEAN
Countries

Exhibit 9

46%

1%

65%

n/a

29%

16%

51%

n/a

Change over
2009-2010

31

10,701,291

n/a

2,024,599

n/a

813,361

467,941

7,395,390

n/a

Total
production
of
motorcycle
and scooters
in 2010

proton: Its rise, fall, and future prospects 375

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S0218927512500150.indd 376

88,576,758

Vietnam

90,645

510,730

161,195

272,429

181,948

5,068,996

221,773

52,296

14,093,309

Size of economy in 2009


(Millions of USD)

21

31

152

158

543

641

686

765

Motor vehicles (passenger


& commercial) per 1000
people

1,041

2,247

1,866

4,187

39,423

38,578

8,197

111,743

45,230

Nominal GDP per capita


in 2008 (USD)

2,900

4,000

3,300

8,100

50,300

32,600

14,800

78,000

46,400

GDP per capita PPP in


2009 est. (USD)

Source: http://www.nationmaster.com/graph/tra_mot_veh-transportation-motor-vehicles (accessed on May 20, 2010); www.cia.gov; United Nations Statistics
Source: http://www.nationmaster.com/graph/tra_mot_veh-transportation-motor-vehicles (accessed on May 20, 2010); www.cia.gov; United Nations Statistics
http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm
http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm

97,976,603
240,271,522

Indonesia

65,998,463

Thailand

Philippines

4,657,542

127,078,679

25,715,819

491,775

307,212,123

Population

Singapore

Japan

Malaysia

Luxembourg

USA

Country

Exhibit 10:Key
Key Statistics
Statistics of
countries
ofASEAN
ASEAN
Countries

Exhibit 10

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proton: Its rise, fall, and future prospects 377

Exhibit 11

Exhibit 11: Output of Japanese Automobile Manufacturers and their Counterparts in ASEAN Countries
in 2008
(Units)of Japanese Automobile Manufacturers and Their Counterparts in
Output

ASEAN Countries in 2008 (Units)

700,000

600,000

575,767

569,449

500,000

382,632

400,000

300,000

200,000
100,501
100,000
40,153

50,305

Vietnam

Singapore

Indonesia

Malaysia

Philippines

Thailand

Source: Japan Automobile Manufacturers Associations, Inc. (2009). Powering Up Hand in Hand, p. 11.

Source: Japan Automobile Manufacturers Associations, Inc. (2009). Powering up Hand in Hand, p.11.

33

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