Judgement year in 2004 for Malaysian carmaker Proton

Judgement year in 2004 for Malaysian carmaker Proton

Eileen Ng
Agence France-Presse
Kuala Lumpur

A judgement year has dawned for Malaysian carmaker Proton as
it faces threats from higher duties and greater foreign
competition under a newly-unveiled tariff structure to liberalize
the auto sector, analysts say.

Proton is the clear loser under the tax scheme, and the launch
of new models slated this year will "make or break" the carmaker
which has been struggling over the last year to arrest a sharp
slide in its market share, they say.

Malaysia, which is Southeast Asia's largest car market,
announced on New Year's eve it would sharply cut import tariffs
on vehicles built in the region from Jan. 1.

But it also imposed excise duties -- traditionally reserved
for local products -- on all imported cars and raised those for
locally-assembled ones under a complex scheme.

The move is part of its pledge to liberalize the auto sector
under the Association of Southeast Asian Nations (ASEAN) Free
Trade Area (AFTA), where import tariffs for most products in the
region were cut to below five percent over the last year.

Malaysia obtained a two-year reprieve for its auto industry
until 2005 but it said last week it would further defer reducing
duties to the required level until 2008, a move analysts said
reflected deep-seated concerns over the survival of the local car
industry.

The government however, did not shed light on a reported
request by Proton for another 20 years of tariff protection.

The Asian Wall Street Journal last month cited industry
sources as saying Proton had requested for immediate exemption
from all import duties and excise taxes, as well as government
grants for research and development.

"The year 2004 will indeed be the judgement year for Proton,"
OSK Research said in a report.

The new tariff structure could see foreign cars below 1,800cc
become cheaper by about 10 percent but will spell higher taxes on
Proton by about two to 12 percent, it said.

Proton is banking on new replacement models for its Wira,
Satria and Tiara to boost sales but consumers' reception remains
uncertain and this could "make or break Proton" which is battling
to keep its market share in these tough conditions, OSK said in a
report.

The first model is expected to be launched in the first
quarter, fitted with Proton's own Campro engine at its brand new
plant in Tanjung Malim which could help cut cost by 20 to 30
percent, it said.

"Proton is the clear loser," said TA Securities.

It ruled out a price rise for Proton cars and warned the
carmaker must urgently aim at cost-competitiveness to survive.

Edward Ong, auto analyst with ING Financial Markets, said
Proton still enjoyed relatively high tax protection including a
current 50 percent rebate on excise duties.

Proton makes a gross profit of some US$1,500 for each vehicle
sold, making it more profitable than many global manufacturers
including U.S. giant General Motors, due to the protection, Ong
said.

But its price advantage is fast eroding because imported cars
are becoming cheaper and it faces an overall duty increase of
about two percent under the new scheme, he said.

Proton is also not cost-efficient due to a low production
volume of only some 200,000 cars a year and a perception of poor
quality due to its old models is also hampering sales, Ong said.

"Proton will have to keep running harder and harder and become
more efficient. It needs a strong foreign partner to improve its
competitive position significantly," he said.

Proton, set up nearly two decades ago, used to sell six out of
10 new cars in the country but for the first time in years, its
market share has shrunk to less than 50 percent under intense
competition from Japanese and South Korean rivals.

Ramon Navaratnam, an economist, said the introduction of
excise duties on imported cars showed Malaysia had not "come to
grips with full open competition."

Rather than protecting the local car industry, he said, Proton
should link up with global players to boost its competitiveness.

"We are postponing the date of real competition. Instead of
becoming more protective, we have to become more competitive and
we have to do this sooner rather later," he said.