Carmaker Proton under siege as Malaysia woos foreign rivals<\/p>\n
Eileen Ng, Associated Press, Kuala Lumpur<\/p>\n
An ambitious new roadmap designed to turn Malaysia into
\nSoutheast Asia's new auto powerhouse - challenging Thailand -
\nwill benefit foreign auto companies but spells bad news for
\nstruggling national carmaker Proton, analysts say.<\/p>\n
The framework for a long-awaited national auto policy unveiled
\non Wednesday offers wide-ranging incentives including low-
\ninterest loans and grants to entice foreign investment in the
\nsector. But it strips Proton of its tax privileges as part of
\nMalaysia's auto liberalization.<\/p>\n
Under the new policy, priority will be given to manufacturers
\nand assemblers using Malaysia as a launch pad to tap regional and
\ninternational markets, the government said.<\/p>\n
\"It's a bold announcement and a wake-up call to national auto
\nmakers that the days of protections are over,\" said Mohamed
\nAriff, executive director at the Malaysian Institute of Economic
\nResearch.<\/p>\n
Set up in 1983 as a symbol of Malaysian self-reliance in heavy
\nindustry, Proton has long enjoyed government protection in the
\nform of high tariffs on imported cars. But as tariffs are being
\nslowly eroded under a regional free trade pact, its market share
\ndwindled to around 30 percent in June from 57 percent in 1993.<\/p>\n
Proton, without a chief executive since August, has sunk into
\nthe red in the quarter that ended in June and is currently in
\ntalks to sell an equity stake to German auto giant Volkswagen AG.<\/p>\n
The race is expected to become more intense after the
\ngovernment slashed import tariffs on cars made in other Southeast
\nAsia countries to 15 percent from 20 percent as part of a free
\ntrade agreement under which they are to be phased out in three
\nyears.<\/p>\n
The government has also ended a 50 percent rebate that Proton
\npreviously received on excise taxes that are imposed on all cars
\nsold in Malaysia. Analysts said that would be a blow to Proton,
\nbut that it would benefit from newly announced government grants
\n- for research, training, and technology acquisition - aimed at
\nhelping local carmakers face growing foreign competition.<\/p>\n
This will buy Proton some time, but the message is clear for
\nthe carmaker.<\/p>\n
With the government's new push to overtake Thailand as
\n\"Detroit of the East,\" analysts say it is imperative for Proton
\nto accelerate negotiations with Volkswagen and strike a strong
\npartnership that can boost its quality and help it gear up for
\nforeign competition.<\/p>\n
\"The one thing that Proton needs at the end of the day is
\nforeign technology. The message is clear for Proton: it needs a
\nforeign alliance to survive. Otherwise there really is no hope in
\nsight,\" said Edward Ong, auto analyst at Macquarie Securities.<\/p>\n
Thailand is currently the top production base in Southeast
\nAsia for foreign carmakers, including Toyota Motor Corp. and
\nGeneral Motors Corp.<\/p>\n
But production in Thailand focuses largely on commercial
\nvehicles such as pickup trucks. Malaysia is the biggest producer
\nof passenger cars, accounting for 24.4 percent of such vehicles
\nmade in the region last year.<\/p>\n
HLG Research says a tie-up with Volkswagen will benefit Proton
\nby improving the general impression of its car quality and
\nbringing in a potentially stronger management team. That should
\nalso help boost production at Proton's mega factory in Tanjong
\nMalim, in central Perak state, which is designed to produce 1
\nmillion cars, but currently rolls out less than 200,000.<\/p>\n
\"Proton is under siege, but not all is lost,\" HLG said in a
\nresearch note. \"The proposed VW alliance brightens Proton's
\nprospects and longer-term survivability.\"<\/p>\n
Volkswagen may abort the alliance if majority stake and
\nmanagement control are denied, the research firm said.<\/p>\n
Proton, which is controlled by the government's investment
\narm, Khazanah Nasional Berhad, last month said it is open to
\nselling an equity stake to Volkswagen but will not cede control
\nto Europe's largest carmaker.<\/p>\n
The government last week reiterated it will safeguard the
\nnational car industry as some 300,000 people have jobs related to
\nProton.<\/p>\n
Other analysts said the new auto framework and duty structure
\nhave dispelled some uncertainties and will allow players to make
\nconcrete strategic plans for the future.<\/p>\n
\"We feel that the non-national players are the main
\nbenefactors as they would now receive the same incentives given
\nto national players,\" said AmResearch.<\/p>\n
However, it said the auto policy framework is still short on
\nstrategies to make Malaysia a regional auto manufacturing base
\nand insufficient for it to catch up with Thailand.<\/p>\n
The government is to announce full details of the national
\nauto policy within three months.<\/p>",
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