Proton needs to get this window right

By Paul Si (The Malaysian Insider)

APRIL 16 — It’s good to be good at what you do but it’s better to be lucky. And boy, is Proton lucky. The global economic crisis might just turn out to be a window of opportunity.

Just a couple of years ago, it looked like the national pride and joy was about to smash full tilt into a concrete wall, and the driver had just discovered the brakes weren’t working. (Actually, that’s the simplified version. The real one was worse; the driver refused to acknowledge there was a wall ahead until the panicked passengers had to yank him kicking and screaming out of the seat and put in another driver, who did recognise there was indeed a wall up coming fast but found the brake pedal mushy.)

Remember the talks with various foreign car companies — the Big Boys — about something we love to call “smart partnership”? They give us money, they give us know-how, they give us access to their markets, and we get to call the shots.

Those in the know could have told you where these negotiations were headed — nowhere. And so they talked, and they talked, and then they walked. The last hope, or straw, was Volkswagen when called off their bid to take up a stake in Proton.

The reason for all those talks in the first place was the belated realisation that Malaysia, with a population of under 30 million, is simply too small to sustain an automotive industry that survives solely on selling to local consumers.

So, to survive, Proton needed to sell its wares abroad. And, it had to sell them in large quantities, and at a profit.

Which meant it had to compete. In any market it wanted to go to, it would find Toyota already there, and Honda, and Nissan, and Renault, Peugeot, Fiat, Opel, Hyundai, Kia — in short, every car maker out there. And, the Chinese were just getting started.

And, these Big Boys were already established, with strong reputations, strong dealer and service networks, which Proton will have to spend money to build up.

Even if the money had been available to develop a global network in a short time, Proton would need a wider range of products than just three or four small saloons with engines ranging in capacity from 1.2l to 2.0l. Consumer tastes were changing and more market share was going to MPVs, SUVs, crossovers and other new body designs that were being churned out.

Proton did not have cost advantages either. A small volume meant it had to pay more for a part than a Big Boy would for a similar part simply because Big Boy orders in huge quantities.

There are other factors like amortisation of development costs, corruption, cronyism, etc, which I wouldn’t go into in great detail because something of far greater significance has happened — Proton today is in far better shape than it was a couple of years ago.

Toyota is looking at a loss of US$5 billion (RM18 billion) this year. The company that has not put a foot wrong in any key area – engineering, design, production, marketing – was forced to cut domestic production by 50 per cent.

Already arguably the best car maker in the world, Toyota had just overtaken General Motors to become the world’s biggest, but its top executives were quoted as saying they were not enthusiastic about claiming the Number One spot in such an inauspicious fashion — by having the other fellow fall faster and further than Toyota itself was falling!

If news coming out of the best is bad, that from the rest is far worse. Talk of bankruptcy is rife in Detroit, and things are hardly any better elsewhere.

The global recession that started with greedy banks has spread everywhere, and few industries have been hit harder than the carmakers. Amid fears of impending job losses or jobs already lost, buying an expensive new car ranks a long way down in many people’s list of priorities.

So, why then is Proton lucky? Well, when the mighty are brought low, the small become relatively bigger, no? When the faster sprinters all suffer sprained ankles, do we not have a better chance of winning the race?

Despite the doom and gloom, many of us ordinary Joes may now actually be better off than many of yesterday’s billionaires simply because we have smaller debts! We may not have much in the bank but they are in hock to the tune of hundreds of millions.

With GM and Chrysler deeper in red ink than the GDP of some third world nations, and Proton not in danger of bankruptcy, does that not mean Proton has moved up a few notches, relatively speaking?

Proton’s engineers may have been working hard to improve product quality, and its marketers may have strived to polish up its image, and everyone else in the company from the managing director down may have done his or her part to improve the brand.

And now, events beyond their control, and even beyond the control of our overprotective government, have given the company a lifeline.

Proton may still lack the resources to compete on its own on a level playing field but its rivals’ misfortunes have certainly reduced the handicap it faces.

Just as the mass extinction of dinosaurs cleared the way for smaller mammals to prosper, the disastrous effects of the global downturn on the established order has given Proton a glimmer of hope.

But a chance does not translate into automatic success. Much remains to be done.

There are still capabilities and technologies that Proton does not have in-house but, looking at the mess that the established Big Boys are in despite their advanced knowhow and technology, it can be argued that this is not the huge disadvantage it was.

What Proton needs, it can buy from the cash-strapped Big Boys.

And here’s something the marketers can chew on. Spread the word that there’s no shame in buying and sharing bits and bobs. Everyone does it, and has been doing it for a long time but, somehow, the obsession with “Malaysia Boleh” and making everything ourselves has hamstrung rather than aided Proton.

If it’s cheaper to buy a component from someone else than to make it yourself, just buy it. Concentrate on making a better finished product. At the same time, focus on those parts you can make better than anyone else, then make them in huge quantities and sell them!

There are other valuable lessons to be learned from the devastated car market. While the demand for previously hot sellers like SUVs and pickups and imported luxury sedans has evaporated, a few marquees have exploited the situation to their advantage.

South Korea’s Hyundai and KIA, in particular, have actually increased sales of some small models by highlighting decent quality at low prices, fuel efficiency and offering customers protection against future job losses.

The latter is an excellent example of offering customers what they want and need.

In the good times, people wanted the best in terms of luxury, performance and prestige, and they could afford to pay for it. In fact, it was cool to pay more, and be seen to be able to afford to pay more.

In times like these, they want good value and the assurance that, even if they lose their jobs, they will not be ruined because the car company will buy back the car at a reasonable, pre-agreed price.

So, opportunities really do exist in adversity.

One thing has not changed, though. Competition still exists and, if anything, it may be even tougher as everyone chases a piece of the shrinking pie.

But Proton has a chance because what it lacks — prestige, image, status, call it what you will —  is not such a big handicap now.

The biggest news in the car scene of late was not some new Aston Martin or Bugatti but the Tata Nano, billed as the world’s cheapest car!

It has become cool in many first world countries to be seen driving a cheap, small, economical and reliable car with few pretensions. In other words, something like a Proton.

There’s another piece of luck. SUVs, which were all the rage despite being regarded as guzzlers, and which Proton lacked in its line-up, are not cool any longer. So, there is no need to waste money going down that road.

With the launch of the new Exora MPV to generally positive response, Proton now has the opportunity to take its expanded line-up and go on the road.

The government has its part to play as well. The time is well past for protectionist measures.

Any benefit from sheltering Proton (and Perodua to a lesser extent) by keeping other carmakers out (or at least, out of reach of average Malaysian motorists) will be far outweighed by the potential gains from Proton venturing, and succeeding, out there.

By a bit of luck more than through any real effort of our own, a window of opportunity has opened. Let's hope Proton puts its power window blues behind it and does a better job with this window.