Malaysia Intent on Severing Financial Ties to Proton

Malaysian national automaker Proton is on notice the government cannot continue to protect it when its sales are plunging and it holds just 15% of the domestic market, down from 74% in 1993.

International Trade and Industry Minister Mustapa Mohamed says in a statement the government has given Proton 13.9 billion ringgit ($3.6 billion) in grants, various forms of assistance and forgone taxes since its establishment in 1983.

“Proton, which is our national car project, needs to graduate from this protection,” Mustapa says. “In view of the very serious nature of the problem, the government believes that the current business model adopted by Proton is not sustainable.”

His ministry gave Proton vendors MYR100 million ($25.6 million) in soft loans last year.

“Even then, it has come to my attention that some of the vendors may face serious challenges if Proton continues to operate at the current level of production and sales,” Mustapa says. “A few of them might be out of business in the next three to four months.

“There has been intense discussion between MITI and the senior management of Proton on the future of this company in the past six months.”

Mustapa says the government’s assessment of Proton is that it is a relatively small global player and thus not able to compete with foreign automakers unless it can increase its exports substantially.

Proton is suffering a problem of underutilization; only about 35% of the available capacity in each of its two production plants is being utilized.

“The decision to have two plants is probably one of the mistakes made in the past by Proton,” the statement says.

The government is deliberating a Proton request for more grants and soft loans at a time of shrinking revenue due to falling oil and commodity prices. “It is a major request and the government needs to be thorough with its evaluation as a lot of public money is involved.”

“Having said that, I would like to assure Proton employees, vendors and the Proton ecosystem that their interests will be taken into consideration before we make any decision on its request for assistance,” Mustapa says.

He says if the government does decide to assist Proton, several conditions would be imposed, including requiring it to immediately identify a strategic foreign partner. It also would require that the company be professionally managed.

“I have been informed that there were instances when Proton appeared to be unprofessional in its decision-making process,” Mustapa says. “For the government to consider providing financial assistance to Proton, it is important that a competent leadership team be appointed in the company.”

Mustapa says the government’s decision to go into heavy industries, including the automotive sector, in the mid-1980s was a bold and courageous one.

“However, the government cannot continuously protect these industries,” he says.

“Other countries such as Japan and South Korea have protected their automotive industry, but these measures were short- and medium-term in nature and were eventually abolished.”

The statement says Malaysia’s second national car project, Perodua, is a more sustainable model. Perodua, 49% owned by Malaysian shareholders, has a joint venture with Daihatsu and Toyota and is profitable.

Changes are already beginning at Proton with the immediate resignation of former prime minister Mahathir Mohamad as Proton chairman. It was Mahathir, who as prime minister, created the national car company.