Proton chief says RI car program may be too late

By Mitchell Mackey

INDONESIA's national car policy may be 10 years too late, according to Rashid Rahim, the chief executive officer of Malaysia's flagship carmaker, Proton.

Speaking in Kuala Lumpur earlier this month, Rashid said Proton -- which has now been in the market for 10 years -- is fighting aggressively for its survival in the fiercely- competitive international car market.

"We know how difficult it is to build a car company and the future for us is going to be very challenging," Rashid said.

"Indonesia's car companies will face similar challenges and they are not as far advanced as we are because they are only now starting," he said.

Proton was established with a large degree of state protection as part of a government policy to encourage the development of the Malaysian automotive industry.

Similarly, PT Timor Putra Nasional, as the designated Indonesian "national car" carmaker, has been granted tax concessions in order to help make the company viable and encourage further investment in full-vehicle and component- manufacturing industries.

Although Indonesia has had a number of vehicle assembly operations producing cars and commercial vehicles for some time, the government felt that there had been little in the way of technology transfer.

According to the Minister of Industry and Trade, Tunky Ariwibowo, the tax concessions given to PT Timor, which is headed by President Soeharto's youngest son Hutomo Mandala Putra, are required to help Indonesia develop its automotive industry further.

In an interview with the Straits Times, Tunky said: "We have to cooperate with someone who is really willing to give the technology and provide everything in order for us to develop our own technology and industry.

"The Japanese have been here since the early 1970s.

"Everybody knows the developments we have had so far -- not enough attention has been given to developing support industries."

While PT Timor may help develop the necessary infrastructure in the short term, the progressive reduction in tariff protection, as Proton is now finding, may effect the long-term survival of Indonesia's car industry.

Proton acknowledges that the design and development of its own cars is an essential but challenging goal.

"We have to have our own design and engineering capabilities and to do this, we need volume sales in export markets and that is very difficult as we are competing against very big international players," Rashid said.

"We are developing a niche strategy, looking for opportunities in markets around the world where we may not have to compete directly against the international car companies."

A major investment program is currently underway which will double Proton's production capacity to more than 700,000 cars.

A new state-of-the-art factory, called Proton City, is being built near Kuala Lumpur.

Rashid said that as the Malaysian market could account for only half of the company's production, the export campaign must be successful.

However, Proton's product lineup makes it difficult to be truly internationally competitive.

Strategic alliances with Mitsubishi and Citroen have resulted in the conversion of vehicle platforms from those companies into Proton products, such as the Mitsubishi Lancer, which is manufactured in Malaysia as the Proton Wira.

However, Proton is at least two years behind the new model cycles of Mitsubishi and Citroen.

The new-generation Lancer is now on sale in most developed markets but it will be at least another year before the Proton version is available.

The company also continues to rely heavily on imported components, primarily transmissions and engines, which come mainly from Japan.

Likewise, PT Timor, with its relationship with Kia Motors Corp of South Korea, could face the same problems.

The design and development of competitive passenger cars requires massive investments that even well-established, medium- size carmakers such as Volvo and Subaru find difficult to afford.

So far, Proton is yet to establish a significant presence in Indonesia.

About 750 Proton Saga sedans are being operated as taxis in Jakarta as part of a trade agreement which involves Malaysia buying aircraft from the Bandung-based PT Industri Pesawat Terbang Nusantara (IPTN).

Proton is investigating the economics of establishing a vehicle assembly operation in Jakarta. However, a decision is not expected for some time.