Proton revs up for AFTA with ambitious tie-ups

Proton revs up for AFTA with ambitious tie-ups

Eileen Ng, Agence-France Presse, Kuala Lumpur

With just over a year left before Malaysia's auto market is forced open under a regional free trade pact, national carmaker Proton is aggressively expanding its reach and diversifying its product range with two ambitious tie-ups to prepare for greater foreign competition.

Proton last week inked a letter of intent to acquire a 50 percent controlling stake in Italian motorcycle producer MV Augusta Moto SpA, which it said was acknowledged as the "Ferrari of motorcycles".

Proton already controls British sports carmaker Lotus and the Augusta acquisition, if it pushes through, will give added prestige to the Malaysian manufacturer, which started out in 1985 with hand-me-down technology from Mitsubishi of Japan.

In another move marking a new phase in its 18-year history, Proton, long used to a cosy domestic market, also sealed a 16- year alliance that would pave the way for it to sell engineering expertise to Iran and access a booming auto market there.

Under the pact with Automotive Industry Development Company (AIDCO), Proton will supply Malaysian designed and built vehicle platforms and its own Campro engines as well as assist AIDCO to develop research and manufacturing capabilities until 2020.

AIDCO owns Iran's two top car manufacturers, Iran Khodro and SAIPA Khodro, which jointly control 90 percent of the country's market of some 700,000 cars.

Proton said the Iran deal marked a "significant drive forward" in its push to expand and would cut reliance on a domestic market where competition is heating up ahead of liberalisation in 2005 under the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA).

Tariffs on imported cars in Southeast Asia fell below five percent in January under AFTA but Malaysia obtained a two-year reprieve for its auto industry.

"From just a car assembler and manufacturer, Proton has been propelled into the ranks of more established global car manufacturers which have developed and sold their technology capabilities, in a span of less than two decades," a company spokesperson told AFP.

With the current best-selling model in Iran harking back to the 1960s and priced at a hefty US$10,000, he said there was huge potential for Proton in helping to develop a new generation of cars there.

But analysts are not convinced, and most believe a foreign partner is still crucial to Proton's long-term survival.

Edward Ong, auto analyst at ING Barings, said Proton lacked economies-of-scale that other major manufacturers enjoy and suffered from a perception of poor quality and low acceptance overseas.

With an annual output of under 250,000 cars a year, he noted Proton was among very few carmakers with production of below one million units.

"In the auto industry, it's all about volume. Doing things like luxury motorcycles is a niche but it's not going to help much. They cannot do without a foreign partner," Ong said.

Proton's market share dipped below 40 percent in August and is likely to erode further under AFTA. Ong said it can expect other forms of government protection when tariff walls come down but warned this would never make the carmaker competitive.

The government has said it would impose excise duties on imported cars from January to offset losses in revenues from import tariffs but has not unveiled details.

Seow Choong Liang, research chief at K and N Kenanga, said there were few details on the auto policy and restrictions in Iran, and how the deal would benefit Proton.

"Proton will have to prove itself when AFTA comes into place and time is running out. It will face a lot of challenges going it alone in an already crowded auto sector," he said.

In a bid to boost sales, Proton recently teamed-up with the country's number two bank to offer buyers attractive financing schemes and other services.

It is pinning hopes on new models to be rolled-out next year from its new hi-tech manufacturing plant in Tanjung Malim north of Kuala Lumpur.

The plant is part of a three-billion-ringgit (US$789 million) auto city modelled after Detroit, that Proton said would cut costs and double its annual production to 500,000 cars by 2005 and to a million by 2010.