By Matthew Campbell and Choong En Han
Proton was supposed to drive Malaysia into the future”•not into a ditch.
In its day, automaker Proton Holdings was a source of national pride and the centerpiece of a bold strategy by Mahathir Mohamad, Malaysia’s leader for more than two decades, to turn his country into an industrialized powerhouse equal to Asian Tigers like South Korea and Taiwan. The former prime minister founded the company in 1983, calling its first sedan, the Saga, an icon of “national dignity.”
Mahathir’s dream is now in tatters and Southeast Asia’s first auto brand is in severe financial trouble, even after receiving more than $3 billion in subsidies since its foundation. Proton is seeking to sell a stake of as much as 51 percent to a foreign buyer in order to keep factories open and develop new models.
After months of talks, Proton parent DRB-Hicom’s board plans to meet this week to discuss proposals from China’s Zhejiang Geely Holding Group Co. and France’s PSA Group, a person with knowledge of the situation said Friday, asking not to be identified because the deliberations are private. DRB-Hicom declined to comment on the sale process.
Proton’s travails are symbolic of Malaysia’s broader failure to break out of what economists call the middle-income trap. Despite stacks of studious white papers and a raft of mega-projects intended to jump-start productivity, growth in gross domestic product has declined below 5 percent, trailing government targets, and a quarter of the population receives aid from Prime Minister Najib Razak’s government to top up low incomes.
Mahathir’s legacy
With a major part of his legacy at risk, Mahathir, who led Malaysia from 1981 to 2003, is strenuously opposed to giving foreign investors control over Proton, which was privatized in 2012. “My personal view is that it must remain a national car,” the 91-year-old said in an interview in Putrajaya, the purpose-built capital outside Kuala Lumpur that was another signature project during his tenure.
“It is a national car industry. It’s not just about a car. It’s about engineering. A country without engineering skill and knowledge will never become a developed country,” he said.
Proton was conceived as both a statement about Malaysian-style industrial planning –proof that a developing country could haul itself to the commanding heights of the global economy”•and a practical source of inexpensive vehicles for Asian consumers. When it was launched in 1985, the Proton Saga sedan started at just under 18,000 ringgit, or about $7,200 at the time, and sold briskly in Malaysia and elsewhere in the region, as well as the UK.
Yet despite the Saga’s patriotic origins, foreign technology played a significant role under the hood. The sedan was based on the chassis of Mitsubishi Motors’ four-door Lancer Fiore, and the Japanese company provided major components for many of Proton’s later models. It would take until the late 1990s for Proton to be able to develop new cars completely on its own.
Tariff protection
For most of its history, Proton benefited from tariffs of as much as 300 percent on imported cars. Combined with rules that allowed consumers to spread cheap car loans over as long as nine years, the company was able to establish a dominant position in the Malaysian market.
Yet even with that home-field advantage, Proton’s success proved fleeting. At the high-water mark of sales in 1993, Proton accounted for 74 percent of new cars sold in Malaysia. In 2016, a decade after the government slashed tariffs on foreign-made vehicles as part of its participation in a Southeast Asian free-trade pact, the figure was 12.5 percent.
Aside from tariffs, analysts point to multiple culprits for Proton’s failure to compete with international automakers. For example, in its short history the company’s cars have racked up an unenviable reputation among Malaysians for quality problems. One notorious issue involved power windows that would jam shut, requiring drivers to open their doors and lean out into the road to hand over cash at toll booths.