HOWEVER you look at it, it was inevitable that national carmaker Proton Holdings had to find a foreign partner, and sell a stake in itself. Not that it hasn’t tried over the years, but it finally succeeded.
The 49.9% stake sale to China’s Zhejiang Geely Holding Group Co this week caps the long search for a partner over the years – from established Western carmakers such as Germany’s Volkswagen to France’s PSA Group.
But the stake sale has obviously generated mixed feelings with the man who thought up of Malaysia’s heavy industrialisation push – Dr Mahathir Mohamad — calling it “the great sell-out”.
Yet, others see the publicly-listed company’s move as unavoidable in order to keep it alive and, inevitably, also the end of an era in Malaysia.
For Dr Mahathir, the last piece of his heavy industrialisation edifice is being dismantled. Perwaja Steel failed. And now Proton.
The politician took power in 1981 and by 1983 had made heavy industrialisation a cornerstone of his economic policy. Steel and later, making cars from that steel, would vault Malaysia from an agrarian and assembly economy to the bigger industrialised economies.
It was also a way to cut imports and sell cars cheaply to Malaysians. Launched in 1985, the first model Proton Saga sold at under RM18,000 and proudly became the first car to cross Dr Mahathir’s other great project, the Penang Bridge that same year.
Yet, foreign technology played a big part in the national car. The Proton Saga was based on the Mitsubishi Motors’ Lancer Fiore chassis, and the Japanese company provided major components for many of Proton’s later models.
Only in the late 1990s was Proton able to develop new cars completely on its own.
One aspect of Malaysia’s heavy industrialisation push and Proton’s business was to develop local vendors. Many third-party accessories and other car components were made in Malaysia although quality was suspect and led to many complaints.
Some continued to be part of the vendor network but piled up debts as stocks gathered dust. The same could be said as Proton cars piled in stockyards when sales declined following the establishment of a second carmarker Perodua in the 1990s.
Will the vendors get a lift from the Geely acquisition? Or will they also cry like Dr Mahathir in describing the sale of his “child” to foreigners as not benefitting Malaysians?
The fact is Malaysia still holds a majority stake in Proton and some vendors will finally get paid but they should not expect sweetheart deals.
Only the strongest and fittest will survive. One cannot expect mercy from the new shareholders who have built their business after Proton was set up but have done better than the Malaysian automaker.
The Malaysian car industry
Proton was always a risk, and seen as a vanity project. Malaysia’s passenger car sales is easily the biggest in Southeast Asia with some 600,000 in total industry volume sold annually.
As Bloomberg put it, for most of its history, Proton cars benefited from tariffs of as much as 300% on imported cars. It also benefitted from as much as US$3 billion in research and development grants given by Putrajaya.
But Proton’s share has been shrinking over the years – peaking in1993 with 74% of new cars sold in Malaysia but in 2016, a decade after the government slashed tariffs on foreign-made vehicles in a regional pact, it was just 12.5%.
Also, second national automaker Perodua has been taking over the market share. And Perodua is essentially seen as an assembler rather than an automaker.
That is the market reality. But Dr Mahathir has always seen it differently.
“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 told the Bloomberg news service in 2012.
Just a business
For all of that, Putrajaya sovereign wealth fund Khazanah Nasional Berhad sold Proton in 2012 to DRB-Hicom, a conglomerate controlled by billionaire Syed Mokhtar Al-Bukhary.
Even the serial and over-leveraged entrepreneur had to find a partner as Proton was essentially a business to him. Putrajaya loaned RM1.5 billion last year to prevent Proton from going under from defaults as sales still flagged.
That loan came with a caveat: Proton must get a major new investor to ensure the business was sustainable.
There is nothing in Proton now about heavy engineering or a developed nation. It is a business that supports jobs and vendors while struggling for a significant and profitable market share.
Dr Mahathir’s dream of a developed nation with steel plants, automakers and other manufacturing businesses supplying to the world has come to an end.