Tuesday, February 13, 2007

The Problem with Proton...

If we believe the hype, Proton is hot stuff. There are supposedly at least seven parties (4 overseas and 3 local companies) vying to take strategic control of Proton.

The foreigners eyeing the 42.7% controlling stake now held by Khazanah are Volkswagen (VW), Peugeot-Citroen, General Motors and Daimler-Chrysler. The locals are Naza - controlled by AP King Nasimuddin Amin, DRB-Hicom - controlled by Syed Mokhtar Al-Bukhary and Sime Darby Group - GLC.

The govt will reportedly make a decision by next month.

But if you believe the rest of us, Proton is more of a political hot potato. In an interview published in the Oriental Daily News (as quoted by Screenshots), former Proton CEO, Tengku Mahaleel had 4 key questions for the government. And these questions (ironically coming from one of the main characters who created Proton's mess, in the first place), and their answers demonstrate just how hot a potato Proton is.

1) Is the automobile industry important to our national economy?
2) Do we want to protect our human capital (for the automobile industry)?
3) Do we want to give Malaysians a high-level career opportunity?
4) Do we still want to create the entrepreneur spirit from the mold of Small and Medium-scale Industries?

"What is the government's thinking now? If the givernment doesn't say it out, how do we solve the problems?" Tengku Mahaleel asked. "The controlling stake in Proton is the major hurdle of the issue." He said whatever the government decides on the four questions, the answers will be polarised.

If the answer is yes, the solution factor will be Y; if it's the opposite, the solution factor will be X.

The cliff-hanger from Tengku Mahaleel is this: "The government must be very clear: what do you actually want for this country?"
I can't answer for the govt, but I can answer for the rest of Malaysia. Well... at least that part of Malaysia which does not benefit from the golden eggs laid by the big goose that is Proton. Yes, I'm talking about the Malaysians who have been long victimised by high car taxes, high car prices and low quality cars built, sold and serviced by people who think the country owes them a free lunch.

1) Is the automobile industry important to our national economy?

Yes it is. But like virtually every other govt sponsored industry, it has become less and less of an economic driver but more and more of a mechanism to distribute the country's wealth to the politically connected and ethnically favoured, at the cost of morality, fairplay and economic effectiveness.

It seems to me that Proton is more important to the NEP agenda, twisted to enrich a small portion of well-connected Malaysians - than it is to improve the economic well-being of the overall population of Malaysia.

If we discard the NEP agenda strangling the car industry, clearly... there are many alternative industry models that can be utilised to benefit the national economy which don't carry the same inefficiencies and leakages that Proton does.

2) Do we want to protect our human capital (for the automobile industry)?

Firstly, we need to define exactly what human capital you're talking about.

Is it production workers incapable of putting together a well built car?

Is it service advisors and managers whose answer for every problem is invariably: "Proton... biasalah tu..."

Is it savvy strategic planning people who are incapable of realising that Proton's entire product range of one subcompact, five compacts (which thoroughly cannibalize each other), one mid sized saloon and some ridiculous bicycles are a recipe for surefire failure? Or that Proton is nothing like BMW or Honda, and buying a failed motorbike company for an astronomical price is nothing more than a totally useless ego trip?

Is it sauve marketing people who are incapable of seeing that self-delusional advertisement campaigns like "BMW of Asia" (Waja) and "My First Lotus" (Savvy) creates more derision than respect? More brand erosion than brand equity? More laughter than "oohs and aahs"?

Is it a CEO and senior managers who are incapable of recognising that the root of Proton's problems are its dismal quality and bad service, rather than the Malaysian public's unpatriotic discrimination towards a local brand?

If that's the kind of human capital you mean, then I put it to you that we can do NO WORSE (with ANY alternative industry model) than the bunch of nitwits that the hallowed halls of Proton has churned out so far. In fact, I reckon we can put Goofy, Mickey and Donald at the helm of Proton, and we Malaysians would still be better off.

And lastly, exactly which human's capital are you talking about? Is each and every Malaysian citizen eligible to be part of that human capital..., or only those who are born into a certain households, and bear certain honorifics before their names?

3) Do we want to give Malaysians high-level career opportunities?

High level career opportunities.... FOR WHOM? Again, which Malaysians are you referring to?

For Malaysians of all races who are truly talented and capable, OR for those favoured by the govt and its policies, regardless of their ability (or lack thereof)?

From point #2 above, it is as clear (at least to me) that the performance of those "Malaysians" selected for high-level career opportunities in Proton - has been as lacking as a pair of Britney Spear's panties.

And who says that other industry models will not provide high level career opportunities for Malaysians? If Thailand's auto industry is anything to go by, a more independent auto industry in Malaysia will provide more opportunities to more Malaysians by virtue of its larger size and increased investment. Perhaps a stark difference would be that the normal cohort of Datuks, Tan Sris and Tengkus (and their kin) that form the national car industry's current base of "HUMAN CAPITAL" and "HIGH LEVEL CAREERISTS" will find that they no longer have a monopoly of these opportunities by default, but will have to compete with other Malaysians on a level playing field.

4) Do we still want to create the entrepreneur spirit from the mold of Small and Medium-scale Industries?

Of course we do. But for what gains? And at what price?

After 25 years of Proton "creating the entrepreneur spirit" amongst the small and medium industries... what do we have to show for it?

How many of the contractors, suppliers and dealers can survive without the guaranteed business and profits of the Proton gravy train? How much entrepreneurship have these "entrepreneurs" learnt? How much effort have they made to expand their businesses beyond the handouts from Proton? How many of them are actually concerned about learning and improving the auto business, rather than simply cashing-in on the NEP?

If these entrepreneurs are the "gains" we've obtained from this 25 year investment in Proton and the larger NEP, I put it to you that these gains have been painfully slim, and that Malaysia can do much better without all 3 of them (NEP entrepreneurs, Proton and the NEP itself).

And look at the price we've paid.

- Cars that are ridiculously priced (in comparison with the average incomes and standards of living, and in absolute terms versus other countries). The national car project would have failed completely in its aim to provide affordable cars to Malaysians, if it were not for Perodua and the fact that Proton's best sellers remain the ancient Iswara/Saga and the grey haired Wira.

- Virtually no sustainable growth in the auto manufacturing industry, if not for the entrepreneurship (the real deal, not the rubbish created by the NEP) of the distributors of foreign cars and their associates.

- Huge opportunity cost sacrifices in terms of reduced foreign and local investment; marginalisation of the truly entrepreneurial and innovative local small and medium industries, in favour of those that are merely interested to cash-in on the Proton and AP gravy train; superbly bad quality Proton cars which increases the cost of ownership to buyers and total costs to the industry; marginalisation of talented and dedicated auto industry professionals in favour of the usual herd of politically connected or NEP-favoured individuals.

So... what should the 'new' Proton 'baru' look like?

Simple. There are only 3 things that need to be done:

1. Get a foreign partner. Give them control if need be. Stop deluding ourselves that Proton can go it alone. Stop deluding ourselves that Proton has this great, 'world-class' R&D organisation that can sustain the required product pipeline as an independent car manufacturer. Stop deluding ourselves that Proton comprises this group of 'highly skilled, dedicated' employees, suppliers and dealers who need just that little bit more incentive/ motivation to perform miracles. And stop deluding ourselves that all that's needed is more public money. In short, stop taking ecstasy and methamphetamines before making statements about Proton.

Proton needs the engineering know-how of a truly world class manufacturer. It needs the product range and pipeline of a carmaker with global economies of scale. It needs the brand power and reputation of a serious car company to pull the Proton brandname out of the smelly armpits of local disgrace and global ignonimity.

Most of all, it needs an independent controlling stakeholder that is not beholden to any politician, bureaucrat or royalty. We need a foreigner with enough financial backbone and international influence to stand up to the govt and the local automotive "napoleons". Proton needs them to make the hard, objective decisions, and spit in the face of the NEP.

Therefore this excludes the 3 local parties. They have absolutely nothing to offer Proton and there is nothing to gain (and all to lose) from giving them control. They will just dish out more of the same garbage. The intrinsic problems of Proton remain and would in fact be multiplied.

2. REMOVE ALL GUARANTEES from its employee, supplier and dealer policies. All employment and business relationships must be based on PERFORMANCE and RESULTS. Business must only be conducted at arms-length. Nothing more, nothing less. No jobs, quotas, business, custom, contracts or profits to be guaranteed or preferentially given to anyone.

3. No more National Car companies. All car companies need to stand on their own two feet. Any car company that hires Malaysians and expends its profits in Malaysia is good for the country. In real terms, such companies will benefit Malaysians as much as any national car company but without the economic costs and inefficiencies of preferential treatment and protection. For far too long, national car companies have been using their "national" status as an excuse to underperform, rather than a motivation to outperform. We need to get rid of the "Proton, biasa lah tu. (It's Proton. That's usual)" syndrome forever.

I have no doubt whatsoever, that the Malaysian car industry would be a much fairer, bigger, better and more productive one, if we adopt the 3 measures above and put an end to Proton's myriad NEP-inspired auto policies.

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