Tuesday, June 05, 2007

If You Really Love Her, Let Her Go...

Proton will only perish with persistent interference and economically-detrimental nationalistic demands by the Malaysian Government

For the financial year ending Mar 31 2007, Proton Holdings Bhd's revenue dropped 37% to RM4.9bil from RM7.8bil the previous year. In addition it posted a whopping net loss of RM591.4mil against a profit of RM46.7mil previously.

That's not all the bad news. Proton has seen its market share slide to 32% from 40% in 2005. Its market share was as high as 60% at the start of the decade. Car sales dropped by 46.1% from 214,373 in 2002 to 115,538 units in 2006.

Its cash has dwindled from RM3 billion at year-end 2004 to an estimated RM500 million at present.

According to industry officials, there is an estimated RM12 billion worth of unsold used cars in the country and Proton dealers may be the most affected. Seven out of ten are losing money and they are all looking to the government for help.

Financial Analysts were unanimous when they summarised that core operations “will remain weak”. In other words, Proton is in dire straits and is in desperate need of a knight in shining armour.

Unfortunately for Proton, its best chance of recovery, that is through a strategic investment from an established foreign partner is hampered by persistent and inconsistent political interference from the Malaysian Government.

It must have been shocking for the global financial and investment community to hear the Prime Minister decree that he has “made the decision that since Volkswagen is not interested in the proposal that Proton wants in terms of the equity participation but they want cooperation in some other form, Proton can begin to talk to others.”

Proton Holdings Bhd is probably the only publicly listed car manufacturing company in the world in which the prime minister himself, who doesn't hold any management position in the company, who does not sit on its board of directors, and who has no previous working experience in the automotive sector, gives executive instructions.

On whether there was a need to revamp the top management of Proton, Datuk Seri Abdullah Ahmad Badawi claimed that: “They have to do whatever is necessary.” He even added that “they have to turn around. They cannot be going on making losses.”

However on the very next day, Abdullah's very own deputy, Datuk Seri Najib Razak contradicted him when the latter said that “any potential partner had to realise that Proton would never be allowed to fall under foreign control.”

A collaboration "must be in line with our thinking and our position, otherwise there cannot be an agreement. What this means is that we will not simply hand over Proton, we have our stand that a prospective strategic partner must accept," Najib was quoted saying.

Based on the state of affairs at our pioneering national car company, we are in no position to negotiate terms with strong, established foreign partners who have shown an interest in Proton. Persistent seemingly-nationalistic concerns is not only a turn off to potential suitors, it will weaken our negotiating position over time as Proton will only bleeds further. Hence, such 'nationalistic' concerns will backfire on the country's pride and economy.

As it stands, nearly six months of negotiations with French car giant PSA Peugeot-Citroen for an alliance collapsed in March while talks with Mitsubishi of Japan have also been unsuccessful. In addition, it has so far missed two self-imposed deadlines to find a partner for Proton. Previous rounds of talks with Volkswagen broke down a few times after Proton rejected what it said were "inappropriate" plans by the German carmaker to exert control over Malaysian firm.

When the managing director of Proton, 45-year old Dato' Syed Zainal Abidin Tahir was quoted as saying a year ago that: “I’m a Malaysian first and a businessman second. I’m not a civil servant, but part of my job is a social and national obligation I have to adhere to”, he demonstrated his equally misguided sense of nationalism.

Both our national leaders as well as the managing director of Proton needs to understand that long term national interests is best served via a cost-efficient, competitive and technologically innovative organisation. When the company prospers, not only will the thousands of employees in the company enjoy its benefits, the multiplier and knock on effects on the rest of the industry as well as to the country will be immense and immeasurable.

To achieve such excellence, if the cost is the control of Proton, then so be it, for it will serve our long term national interest. After all, these foreign financially strong and established automotive companies are not going to be foolish enough to inject funds and technology into a failing company if it doesn't get to change its management or reap its just rewards.

Hence for Malaysia, owning a smaller stake in a “cost-efficient, competitive and technologically innovative” company is certainly preferable, whether from a nationalistic or economic perspective, to owning the entire stake in an inefficient, cash strapped, loss-making and technologically backward company.

Therefore, for Proton to prosper again, it is absolutely critical for the Government to stop meddling with the future of the company by making short-sighted and detrimental demands. It is missing the woods for the trees.

The government should also take a holistic view by focusing on Proton's cost-efficiency and competitiveness, instead of taking ineffective and ultimately wasteful stop-gap short term measures.

For example, a proposal was made whereby cars which are 15 years and older may be scrapped for a RM5,000 voucher funded in part or in full by the Government to be used as a down payment for a new or used national car. Or when Proton requested for an additional RM16 million on top of RM10 million it has already received to 'subsidise' Proton dealerships. Or when Deputy minister of international trade and industry Datuk Hj Ahmad Husni told the Parliament that the government was prepared to dish
out a further RM50 million to 'help' Proton improve its competitiveness earlier this year.

These are the very reasons why a spoon-fed Proton has not been competitive globally or even locally after 23 years. The Government should stop its interference immediately and let Proton find the best strategic partner for itself. The exercise should be judged not by short term national interest, hampered not by self-defeating pride but decided purely through commercial and competitive factors.

For as they say, “if you really love her, set her free...”
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