AFTER Dr Mahathir Mohamad became prime minister, he pitched the idea of a third national car project. Ever since then, the project has gained traction among the public.

Though policymakers and local automotive players have learned their lessons from previous national car projects, today, it looks like the prime minister is going to realise this dream of making another “national champion” product. 

Policymakers, however, must understand that our current national cars – Proton and Perodua –  have yet to achieve top-tier automotive production since 1985. After more than three decades, Proton still depends so much on the domestic market rather than aiming to become a competitive exportable brand in the global market. Even in the local market, Proton struggles to compete with Perodua and foreign carmakers, but thanks to government, informal and formal support has facilitated it in sustaining sales.

Back in 1985, a national car project was understandable. The project played an important role in spurring heavy industrialisation in the country, although at a high cost and at taxpayers’ expense. The project also inflated other non-national car prices due to higher tax and tariffs to protect our so-called “national interest”. 

Many analysts disagreed with the first national car project due to its substantial cost and risk. But the project has its own merit because the automotive sector is one that has an incredibly wide trickle-down effect. The automotive industry links various parts of the manufacturing sector, since vehicles regularly require some 3,000 parts and components. 

This has diversified the country’s industrial structure and created jobs. More importantly, the business is capital-intensive and involves innovation-oriented activities and incentivises technological advancements in the country’s industrial sectors. The vendor development programme has benefitted so much from Proton. There are many successful Malaysian vendors today linked to other prestigious automotive companies who previously worked under Proton. So, if it wasn’t for Dr Mahathir’s vision, it is unlikely that Malaysian would created its own national car. 

It is something to be proud of today, seeing as to how Malaysia is perhaps one of the few developing countries and Muslim-majority nation that has its own national car.

For the past few decades, Proton has found it hard to maintain sales of more than 100,000 units, especially after signing the Asean Free Trade Area (AFTA), which brings down tariffs from Asean countries to zero. Proton, as a private car company, depends so much on the government for loans, indirect subsidies and research and development funding to sustain itself in the domestic market. 

Last year, the Barisan Nasional federal administration decided to allow DRB-HICOM to sell off its stake in Proton to Zhejiang Geely. The Chinese company acquired a 49.9% share of Proton. While the decision to choose a Chinese company remains vague, some pundits opined it was akin to selling off Dr Mahathir’s “legacy”. 

The decision to sell was done only after Dr Mahathir resigned as chairman. In the global automotive sector, Geely is the third largest car producer in China. It owns Volvo, Lotus (after DRB-HICOM divested its 100% share) and 9.7% of Mercedes Benz. Having Geely as a partner could, perhaps, improve technological upscaling and expand Proton’s market share to outside Malaysia.

Although Proton is no longer 100% owned by a Malaysian company, it has not lost its national status. But this does not justify launching a new national car neither. When TATA group, an Indian company, acquired Jaguar and Land Rover, it did not make the company less British. Similarly, Volvo, despite being owned by Geely, is still Swedish-made. 

Proton will still hold its national car status. One pertinent thing we have to remember is that having a new national car project will be an albatross around the government’s neck. 

The new government recently announced that it would be a private initiative, but no private company is likely to start an automotive business without government backing ie. preferential treatment. Financial support, guaranteed market and absorption of certain risks are among the things the government needs to do to support whoever takes up the project. 

Again, the government will have to fork out investment funds, which, as recently reported by the Entrepreneur Development Minister R&D fund for the project, will be quite large. The government needs to protect the interest of the company because it is still in its infancy. This again will distort the domestic automotive market at the expense of taxpayers’ money. 

So, instead of setting up new national car, why can’t the government focus on Proton? Our national flagship automaker is in dire need of technological upgrading. Why can’t the existing fund for the new project be used for Proton in R&D? 

The key factor that will allow Proton to move forward is technology advancement. This is a crucial aspect for Proton move up the automotive production chain. Perhaps Geely could facilitate technological transfers so that the government can further assist with R&D funds for Proton’s survival. – December 10, 2018.

* Firdausi Suffian reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.