Patrick Chalmers

Patrick Chalmers
Reuters
Tanjung Malim, Malaysia

Malaysian carmaker Proton's new factory in Tanjung Malim is
the best thing to happen for a long time in a town bypassed by
the country's arterial North-South highway.

But residents are not rejoicing yet because of questions over
the company's future, and memories of the project stalling during
the Asian financial crisis in the late 1990s.

Proton has 60 percent of Malaysia's car market, the largest in
Southeast Asia, but that is now under threat as Japanese and
Korean firms nibble away even before car tariffs of up to 300
percent fall to a maximum five percent in 2005.

It is a scenario that plagues carmakers in other Asian
countries, such as India, where Maruti had a market share of more
than 80 percent for decades but is now facing stiff competition
from foreign rivals producing locally.

Property prices have firmed since Proton revived plans to
build a plant in Tanjung Malim, but even property agents are
cautious about prospects for the town's potential savior.

"The problem is not that they haven't got the facilities, it's
that they are in an incredibly competitive part of the market,"
says one, a Proton Wira driver.

Proton has a lot at stake. Sales have slipped and the firm is
desperate for new models to replace its dowdy Iswara and Wira
sedans. It has even started talking about alliances with foreign
makers, something analysts say could lead to a merger.

It was Prime Minister Mahathir Mohamad's ambition to wean
Malaysia off commodities that gave birth to Perusahaan Otomobil
Nasional Bhd, or Proton, in 1983.

A growing middle class, Japanese technology and fat margins
enjoyed behind tariff barriers have helped it survive despite a
global carmaking shakedown.

Tanjung Malim, a nest of Communist activity and fighting in
the 1950s, lost most of its transit trade when the four-lane
highway passed it by.

Hawker stalls once busy feeding truck drivers and other
travelers make do with leaner pickings. Many youngsters migrate
the 80 km (50 miles) south to Kuala Lumpur.

The Proton plant, with an initial investment of 1.52 billion
ringgit (US$400 million) to make 150,000 cars a year, is due to
start production in the first quarter of 2004. It will employ
2,000 workers.

Initial output of a variety of models could quickly satisfy
domestic demand if sales decline as expected, leaving a question
over the plant's potential to expand to a million units.

Times are changing for Proton's aging stable.

In May, Proton warned of weak consumer sentiment and global
uncertainties, a view at odds with the Malaysian Automotive
Association forecast of 3.5 percent market growth to 450,000
units this year.

Its sales fell 10 percent, in both value and volume, during
the year to the end of March to 9.27 billion ringgit, or 216,083
units, from the previous year.

Net profit was flat, but only because R&D spending was at
least 200 million ringgit below a company forecast.

The firm might replace the Wira with a 50,000 ringgit car that
has the look and feel of a Lotus, one analyst said. Proton bought
the British firm in 1996.

"If you like Proton you are betting on one thing: the car
coming out next year," says an analyst at a foreign research
house in Kuala Lumpur, who declined to be identified.

Lotus has already helped Proton develop its Satria GTi
hatchback, the flagship Waja sedan and CAMPRO engine.

Proton's strategy is tough to gauge, but the bones of a plan
have emerged. Last month it announced it would give company
segments a chance to chase business and alliances on their own.

Analysts saw the move as heralding new partnerships for a
three-track plan: lower volumes of jazzier models at home, joint
ventures to make and sell overseas, and farming out some
manufacturing at home.

"It's quite clear they are just trying to give themselves some
flexibility for foreign ventures," said another analyst.

Toyota might be one partner, given its hand in designing
Tanjung Malim's state-of-the-art production lines, but its
Malaysian ties and aggressive inroads into Proton's domestic
sales may stand against it.

Proton Chief Executive Mahaleel Ariff eulogizes Toyota for its
Tanjung Malim work, in contrast to recent bland remarks about
shareholder Mitsubishi, which has a 15.9 percent stake in the
company. The Japanese firm would have to vie with other alliance
partners for selling parts and services, he said.

John Bonnel, Bangkok-based director of Auto Resources Asia,
sees a Japanese partner for Proton, because Japanese would likely
be more attuned to national sensitivities.

"Eventually, Malaysia will give in. There will be a company
that will protect the dignity and name of Proton within
Malaysia," he said.