Southeast AsiaBusiness

Mahathir driving for a new national dream car

Malaysian premier aims to revive his past ambition to build an indigenous auto despite the loss-making reality of his previous Proton pet project

Singapore, September 5, 2018 6:24 PM (UTC+8)
Malaysian premier Mahathir Mohamad steers the country towards a new national car project. Photo: Facebook

When Prime Minister Mahathir Mohamad proposed a new national car project shortly after his May 9 election win, Malaysians quickly took to social media to question the wisdom of reviving a state-led strategy that had delivered at best mixed results during his previous tenure as premier.

For some, Mahathir’s talk of producing a new national car appeared less about an automobile and more about course-correcting the legacy of his earlier 22-year premiership from 1981-2003, under which industrialization policies and ambitious prestige-boosting projects were deployed to modernize Malaysia’s then-largely agrarian economy.

Proton, Malaysia’s flagship national car, was arguably the main driver of the country’s industrialization push when it launched over three decades ago as a fully state-owned entity. When the first generation Proton Saga rolled off the production line in 1985, Mahathir – a noted car enthusiast – hailed it as “a symbol of Malaysians as a dignified people.”

The state-financed carmaker dominated the Malaysian market in the early 1990s, with a 74% market share at its peak. Protectionist tariffs that made imported cars comparatively expensive drove those local sales. Post-Mahathir governments, however, eased those import levies and precipitated a sharp decline in Proton’s sales. By 2017, only 13.8% of the new cars on Malaysia’s road were Protons.

Increased competition from foreign cars and the success of privately-owned Malaysian-made Perodua – a joint venture established in 1992 with Japanese companies, including Daihatsu, a wholly owned subsidiary of Toyota Motor – also hastened Proton’s decline. Perodua currently has the largest share of Malaysia’s car market, accounting for 39.8% in 2017.

Potential buyers look at a Proton car model on display at a Proton showroom in Kuala Lumpur in a file photo. Photo: AFP/Kamarul Akhir 

Though a state symbol of national pride, Proton’s brand over the years became synonymous with complaints of poor quality, despite decades of generous state assistance. DRB-HICOM, a local conglomerate controlled by billionaire Malaysian businessman Syed Mokhtar Albukhary, privatized Proton in 2012 in a bid to reverse its fortunes.

After DRB-HICOM’s attempts to rehabilitate the company fell flat, Malaysia’s government, then led by premier Najib Razak, approved a soft federal loan of 1.25 billion ringgit (US$284 million) in 2015 for Proton to settle mounting debts owed to vendors on condition that the embattled carmaker enter a “strategic partnership” with a foreign car maker.

Enter China’s Zhejiang Geely Holding Group to the saga. The Hangzhou-based car manufacturer acquired a 49.9% stake in Proton last year for 460.3 million ringgit (US$107.3 million), a sale which was touted to shore up the carmaker’s weak financial position, as well as an opportunity for the iconic national brand to upgrade its technological capabilities.

While some observers regarded Geely’s acquisition – the Chinese company’s first foray into the Southeast Asian car market – as good economic sense, the deal became a political lightning rod in the lead-up to May’s general election among conservative nationalists and Mahathir himself, who had served as Proton’s chairman until 2016.

Mahathir saw the sale as a political attack and insult to national pride, lamenting it as “the beginning of the great sell-out” of the country’s economy by Najib. He claimed Najib’s administration was “set on bankrupting Proton and selling it off” to pay debts, which would result in the country being “owned by others.”

Mahathir’s stance on Geely’s purchase of Proton, which he has referred to as “the child of my brain,” dovetailed with the veteran politician’s campaign rhetoric vowing greater scrutiny of various multibillion-dollar projects linked to China.

Then Malaysian Prime Minister Najib Razak (2nd L) and Zheijiang Geely Holding Group chairman Li Shufu (C) after a signing ceremony, Kuala Lumpur, June 23, 2017. Photo: AFP/Mohd Rasfan 

He won the election in part on the message that Najib’s willingness to assume huge foreign debts and agree to lopsided contracts was eroding Malaysia’s sovereignty.

Since assuming office, however, Mahathir has taken a more conciliatory approach to Geely. During his state visit to China last month, Mahathir visited the Chinese carmaker’s Hangzhou headquarters, where he praised Geely’s “green car” technologies and witnessed the signing of an agreement to expand Proton’s markets into China and overseas.

Mahathir had two months earlier test-driven and remarked approvingly of Proton’s newest model, a sport utility vehicle (SUV) based on the Geely Boyue, scheduled to launch in Malaysia later this year. Industry watchers see the launch of the as-yet-unnamed SUV as a key plank of the Chinese company’s strategy to revive Proton.

Despite his more upbeat post-election appraisal of Geely, Mahathir still maintains Proton “is no longer a national car” because it has “been sold to a Chinese company.” In June, he told audiences at the 24th Future of Asia Conference in Tokyo that his government would start another national car company, one which would be “owned by Malaysians.”

In remarks to the Nikkei Asian Review, the nonagenarian premier said the new national car would utilize advanced technologies to gain global market share and conform to Euro-5 or Euro-6 emission standards. Reports indicate Japanese automakers including Nissan Motor and Toyota Motor have already been approached for assistance on the project.

Mahathir’s new national car project was unveiled shortly after his government scrapped plans for a large-scale mass transit project known as MRT3, which would have more-closely integrated Kuala Lumpur’s public transportation network, in order to rein in the national public debt, now believed to stand at 1 trillion ringgit (US$243 billion).

Mahathir Mohamad (L) inspects a newly launched Proton Waja during his previous tenure as premier, Kuala Lumpur, May 8, 2000. Photo: AFP/Shamshahrin Shamsudin 

Malaysian netizens largely opposed Mahathir’s proposal, with many social media users calling for better public transportation systems rather than another national car venture. Others cited concerns with Kuala Lumpur’s notorious traffic congestion and cautioned against repeating Proton’s bailout-reliant, loss-making ways.

Mahathir’s administration, however, believes the project can revitalize the automotive industry, boost the component manufacturing sector and enhance the nation’s engineering capacity. There are also signs that protectionist policies favoring domestically produced vehicles over foreign imports could be slated for a comeback.

Ali Salman, chief executive officer at the Institute for Democracy and Economic Affairs (IDEAS), believes “certain conditions, whether taxes or standards” will likely be reintroduced to protect the local automotive industry, citing remarks made by Mahathir during a recent session in Parliament signaling tighter regulations for imported cars.

Taxes and duties “will add on to the prices of cars and bring down competition” and will not sit well with Malaysians “already feeling the pain from the high cost of living,” says Ali. He said: “It would not be a wise move if the project is government-funded, with money coming directly from the government or through government-linked companies (GLCs).”

Some industry watchers believe Malaysia’s relatively small automotive market and road network make it difficult to justify the creation of any new car company. While the new national car proposal appears to be strongly export-focused, both Proton and Perodua struggled and ultimately failed to win meaningful global market share.

Malaysia’s 93-year old premier is both literally and figuratively back in the driver’s seat and set to build on his checkered automotive legacy. While a new national car may well exceed expectations and confound skeptics, Mahathir will face an uphill battle to convince Malaysians that the venture is a national, rather than personal, ambition.

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