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Proton: Its Rise, Fall, and Future Prospects

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DOI: 10.1142/S0218927512500150

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 ASIAN CASE RESEARCH JOURNAL, VOL. 16, issue 2, 347377 (2012)
acrj
This case was prepared by
Jane Terpstra Tong, Robert
H. Terpstra of Monash
University Sunway Campus,
Malaysia and Lim Ngat Chin
of The Nottingham Univer-
sity of Malaysia Campus as
a basis for classroom discus-
sion rather than to illustrate
either effective or ineffective
handling of an administrative
or business situation.
Please send all correspon-
dence to Jane Terpstra Tong,
Department of Management,
Monash University Sun-
way Campus, Jalan Lagoon
Selatan, Bandar Sunway,
46150 Selangor Darul Ehsan,
Malaysia. E-mail: jane.tong@
monash.edu
2012 by World Scientific Publishing Co. DOI: 10.1142/S0218927512500150
S0218927512500150.indd 347
Proton: Its Rise, Fall, and
Future Prospects
For Dato Haji Syed Zainal Abidin Tahir (Syed Zainal,
hereafter), Managing Director of Proton, recent headlines
such as Auto Sector Faces Numerous Challenges and
European Carmakers Zoom in1 were simply reminders
of the challenges his company faced. Proton had been
troubled by its declining share of the domestic auto market
(Exhibit 1) and consequent dwindling profits and margins.
Without taking into account the governments R&D grant
in 2007/2008, the company suffered three straight years of
losses from 2007 to 2010. Its finances recovered a little in
2009/2010, thanks to the governments cash for clunkers
incentive programme, a MYR143 million (USD48 million)2
R&D grant from the government, and some improvement
in sales. However, its net profit margin barely reached
3% very low by industry standards and most of its
performance measures lagged behind those of the industry
leaders (Exhibits 2 and 3). The stock price of Protons listed
parent, Proton Holdings Berhad (Proton Holdings Limited),
had been substantially lower than its net asset value for
several years (Exhibit 3). Because of its low market to book
ratio and the heavy government subsidies paid to Proton, Mr.
Syed Zainal was under tremendous pressure to turn around
Protons performance. Adding further pressure, the changing
institutional environment had exposed Protons inability to
compete. Since 2005 when the government committed to
1Starbizweek, 19 March 2011. SBW20-21.
2End of year exchange rates were used in this case. We use USD1 = MYR3.464 for
2008, 3.424 for 2009, 3.083 for 2010 and 3.000 for 2011.
1/21/2013 3:07:40 PM
 348 ACRJ

reducing import tariffs under the ASEAN Free Trade Area

(AFTA) agreement, the external institutional environment
became very unfavourable to Proton. Although the govern-
ment continued to protect Proton by providing grants and
subsidies, Proton did not stop losing its market share to
competitors, most notably to the second national car maker,
Perodua. The competition in the domestic market had become
stiffer as it was close to saturation. Further growth had to
depend on overseas markets, in which Proton had failed to
establish a firm foothold. The governments latest National
Automotive Policy3, issued in late 2009, did relieve some
of Syed Zainals worries as the liberalisation of the sector
was limited. Nonetheless, he was aware that the company
desperately needed to improve its quality and efficiency; but
what strategy should he adopt?

Malaysias Profile

Malaysia is a small country that has been independent from

British rule for around 50 years. It has a land size of about
330 thousand square kilometres, equivalent to the size of
Norway, Vietnam, or the state of New Mexico in the USA.
It is only a quarter of the size of its northern neighbour,
Thailand. About half of its land mass lies on the Malay
Peninsula and the other half on the island of Borneo, across
the South China Sea. It is a middle-income country with a
GDP per capita of US$7,775 in 2010, but a per capita GDP
of US$14,800 on a PPP basis. It has a very young population
of around 28 million, with a median age of 25. In terms of
religion, Malaysia is considered a moderate Islamic country
that allows other religions to be practised. Over 60% of
Malaysians are Muslims, about 19% Buddhists, 9% Christians,
and 6% Hindus. Politically, Malaysia adopts a federal parlia-
mentary democracy together with a constitutional monarchy.
A sultan, equivalent to the local king, acts as the chief of all

3Ministry of International Trade and Industry. (2009). Review of National

Automotive Policy. Retrieved March 31, 2011, from http://www.maa.org.my/pdf/
MEDIA_RELEASE_NAP_Media_281009.pdf

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 proton: Its rise, fall, and future prospects 349

Islamic and religious affairs in 9 of the 13 states. Every five

years, one of the nine sultans takes turn to serve as the king
for the whole country. Similar to the UK, the king is only a
figurehead and the actual power rests with the prime minister
and his cabinet. Since Malaysias independence in 1957, the
government has been led by the same coalition political party,
Barisan National, which in turn is controlled by the United
Malays National Organization (UMNO). Except for the 2008
general elections, Barisan National has never encountered any
serious threat from the opposition parties. UMNO has always
been the de facto government.
Malaysians are mainly from four ethnic backgrounds:
Malay (50%), Chinese (24%), Indigenous (11%), and Indian
(7%). The majority of Malays, together with the indigenous
population, are grouped as bumiputera (literally son of the
soil; or bumi in short). The bumiputera enjoy privileges that
are not available to other ethnic groups under the countrys
National Economy Policy, commonly known as the NEP
(1970), and the subsequent National Development Policy
(1990). These privileges were established as compensation to
the bumiputera, who were viewed as a marginalised ethnic
group under British colonial rule and were thus deprived of
opportunities. Similar to affirmative action policies adopted
in other countries, the policies aimed to reverse the long-term
deprivation and gave the bumiputera easier access to resources
and opportunities. The bumiputera were given preferential
treatment and, in many cases, exclusive rights over business
licences, education admissions and scholarships, and govern-
ment contracts and employment4. Through these preferential
programmes, the UMNO-led government aimed to redistri-
bute the countrys wealth, which was largely controlled by
the Chinese prior to 1970, and to lift the majority of Malay
out of poverty. Forty years after the NEP, the affirmative
action policies remain intact despite challenges claiming
that the goals of the NEP have been reached, and that
its continuation only benefits a small group of politically
connected parties. The recent 2010 National Economic Model

4See Chin, J. (2009). The Malaysian Chinese dilemma: The never ending policy (NEP).

Chinese Southern Diaspora Studies, Vol. 3, pp. 167182.

S0218927512500150.indd 349 1/18/2013 3:36:52 PM

 350 ACRJ

did not impose any changes on the NEP programmes. Some

of the key NEP industrial directives are listed in Exhibit 5.

The Malaysian Automotive Industry

Market Demand

Between mid-1980s and 2010, Malaysians reliance on cars

increased to a level that resembled Americans. The sale of
more than 600,000 vehicles (Exhibit 4) in 2010 was quite
remarkable considering Malaysias population of only 28
million. In 2010, Malaysia had the largest passenger car
market in ASEAN5, closely followed by the rapidly growing
Indonesian market (Exhibit 9). On average, one out of every
four Malaysians owned a vehicle6. Compared with other
countries, Malaysia had the third highest vehicle ownership
in the world after the USA and Luxembourg, which were
much richer countries (Exhibit 10).
The popularity of private vehicles as a means of
transportation often surprised visitors to Kuala Lumpur,
Malaysias capital city. Seeing networks of modern highways,
high-speed trains, and abundant automobiles, they found
it hard to believe that Malaysia was still considered a
developing country. The similarity to the US lifestyle offered
by this small developing country was even more surprising. It
was not difficult to spot American drive-through restaurants
and gigantic parking lots at grocery stores, shopping malls
and other major public facilities.
Vehicle ownership began to gain popularity with the
launch of the countrys National Car Project in the early
1980s by the former Prime Minister, Tun Dr. Mahathir
bin Mohammad. Mahathir, also known as the Father of
Proton7. Mahathir adopted Proton as his pet project. During

5Including trucks and other commercial vehicles, Thailand had the biggest auto

market in 2010, followed by Indonesia (Exhibit 9).

6Business Monitor International (2009). Malaysia Autos Report Q4 2009. Business

Monitor International Ltd., p. 6.

7Ellis, E. (2006, July 6). Protonomics. Fortune Magazine. Retrieved May 17, 2010, from

http://money.cnn.com/magazines/fortune/fortune_archive/2006/07/10/8380925/
index.htm

S0218927512500150.indd 350 1/21/2013 3:09:23 PM

 proton: Its rise, fall, and future prospects 351

his 22-year reign from 1981 to 2003, he had a very hands-

on role in Protons operations. His involvement included
selecting joint venture partners, hiring and firing members
of the board, and deciding strategic directions. At the time
of writing, Mahathir still served as an advisor to the board of
Proton and continued to have a substantial influence on the
companys strategy8. The National Car Project was one of
several mega-projects implemented by the Mahathir govern-
ment in an effort to jump-start the industrialisation of
Malaysia. In addition to manufacturing automobiles, the
government also invested in other heavy industries, such as
steel plants, cement factories and oil refineries. Together,
these projects were part of the Industrial Master Plan
that aimed to facilitate Malaysias leap into the league of
industrialised nations.
In addition to the National Car Project, there were
other push and pull factors that fuelled the demand for
automobiles. The first was a heavily subsidised gasoline
supply. Malaysia was a significant net oil exporter and
had the third largest oil reserves in the Asia-Pacific region
after China and India9. This natural endowment allowed
the government to subsidise Malaysians consumption of
gasoline10, which made it possible for low-income citizens
to own and operate a vehicle. The government subsidy on
gasoline varied between 20 and 30 Malaysian sen (about
710 US cents) per litre, or about 1015% of the retail price11.
Another factor was the decision, perhaps implicit, to permit
sporadic rather than concentrated urban planning, which
meant long driving distances between city centres that were
not connected by a mass public transportation system. The
countrys light rail transit (LRT) system was only available in
the Klang Valley, also known as the greater Kuala Lumpur
area. Third, the government made it easy and cheap to

8See Karim, F.N. (2006, April 8). Strategic alliance must benefit industry: Dr. M.

Business Times. Kuala Lumpur, p. 44.

9http://www.eia.doe.gov/cabs/Malaysia/Full.html
10Ramasamy, M. (2010, March 4). Malaysia delays plan for new gasoline subsidy

system (update 1). Bloomberg Business Week. Retrieved May 11, 2010 from http://
www.businessweek.com/news/2010-03-04/malaysia-delays-plan-for-new-gasoline-
subsidy-system-update1-.html
11Teh, E.H. (2010, May 25). Subsidy cuts to boost economy. The Star, N17.

S0218927512500150.indd 351 1/18/2013 3:36:52 PM

 352 ACRJ

obtain loans for buying national brand cars. Car loans in

2010 were available for less than 23% per annum; very
low by both local and international standards. Finally, the
Malaysian government had invested heavily in the countrys
highway networks. Its highway system connected all major
inland cities and neighbouring countries, from Thailand in
the north to Singapore in the south. These developments,
taken together, encouraged Malaysians to acquire private
cars or motorbikes as their means of transport, while at the
same time making it less efficient and economical to adopt
large-scale mass transportation or railway systems. As these
factors had evolved over time, life in Kuala Lumpur differed
significantly from other Asian capitals, in which people were
more likely to live close to one another in high rises and
relied on public transportation for their daily commute.

Key Stakeholders

The development of Malaysias automotive sector was led

by five major groups of stakeholders. The first key group
was the parts and components manufacturers, with about
350 companies making parts and components for vehicles
and about 120 for motorcycles12. The development of the
component industry was an intended by-product of the
national car project. In 2008, the total sales of this industry
amounted to MYR6.37 billion (or USD1.84 billion)13. The
output from this group was important to the industry as
it provided supplies to two other stakeholder groups in
the value chain, namely, the auto manufacturers and the
assemblers. The proportion of locally produced parts in
the national-brand cars varied from 60 to 90%, whereas for
domestically assembled foreign cars the proportion was
between 40 and 60%. The second stakeholder group consisted
of Motosikal dan Enjin Nasional Sdn Bhd (MODENAS),

12The German Chamber Network International. Market watch 2010, The Malaysian
automotive and supplier industry. Retrieved September 6, 2010, from http://
malaysia.ahk.de/fileadmin/user_upload/Dokumente/Sektorreports/Market_
Watch_2010/Automotive_2010__ENG_.pdf
13ibid.

S0218927512500150.indd 352 1/18/2013 3:36:52 PM

 proton: Its rise, fall, and future prospects 353

launched as part of the national motorcycle project in 1996,

and Malaysia Truck and Bus Sdn Bhd (currently known
as Isuzu Hicom Malaysia Sdn Bhd), established in 1997 to
produce commercial and heavy vehicles. The third group of
stakeholders consisted of assemblers. Altogether, there were
ten motor vehicle assemblers of both passenger and commer-
cial vehicles (i.e., Assembly Services/Toyota, Honda Malaysia,
Hicom-Automotive, DRB-Hicom Defense Technologies, Inokom,
Oriental Assemblers, Naza Automotive Manufacturing, Scania
Malaysia, Swedish Motor Assemblies and Tan Chong Motor
Assemblers) and eight motorcycle assemblers (e.g., Honda,
Yamaha, Suzuki, Naza and Kawasaki).
Motor vehicle dealers represented the fourth group of
stakeholders. In 2005, there were 1,978 car dealers and 158
motorcycle dealers14. Included in this stakeholder group was
a special category of dealers unique to Malaysia the
Approved Permit (AP) holders. AP holders were allowed
by law to import new or used CBU (completely built up)
vehicles into the country. There were two types of AP holders
open versus franchise. Open APs, previously given free
to selected bumiputera entrepreneurs, allowed the holder to
import a vehicle of any brand and model from overseas with
each permit. A franchise AP, given to licensed bumiputera
distributors, was a blanket approval that allowed the holder
to import a prescribed brand and make of vehicle within a
period of time. The total number of vehicles that could be
imported was limited to 10% of the total industry volume
in the previous year. For example, in 2010 the country sold
about 600,000 vehicles, thus a maximum of around 60,000
foreign vehicles was allowed to be imported under the AP
system in 2011. Because only bumiputera individuals and
companies15 were allowed to apply for an import licence,
and APs were in high demand in the used vehicle import

14Prime Ministers Department. (2005, October 19). National automotive policy

framework. Retrieved September 6, 2010, from http://www.maa.org.my/pdf/
National%20Automotive%20Policy%20Framework.pdf
15Bumiputera companies were those in which all shareholders and 51% or more

staff members and board members are bumiputera. See Annex B: Definition of
bumiputera company. Retrieved December 14, 2009, from http://www.miti.gov.
my/cms/content.jsp?id=com.tms.cms.article.Article_65a16b80-c0a81573-63596359-
81dbca47&curpage=tt

S0218927512500150.indd 353 1/18/2013 3:36:52 PM

 354 ACRJ

market, there was even a secondary market for APs. In 2009,

each open AP could be re-sold for about MYR40,000 (or
USD11,681)16.
Altogether, in 2008, the automobile manufacturing sec-
tor employed about 50,000 people and contributed to about
5% of the countrys GDP (Exhibit 9).

Protection from the Government

As measured by the number of annual new registrations,

the domestic auto market, grew by about 200% between
1990 and 2008. In 2008, the total sales were 548,115 units, of
which 17,305 (or 3.2%) were imported vehicles. Malaysias
passenger car market had been dominated by the two
national carmakers, Proton and Perodua. At their peak, the
two national carmakers together accounted for 76% of all
domestic auto sales. This duopoly had been supported by
government protection. However, such protection had been
reduced in the previous few years, which had led to Proton
losing market share. In 2010, their combined sales declined
to 57.2% of the market. The drop in the domestic carmakers
market share could be explained partly by the changes in the
tariff structure. Before 2005, all imported vehicles were subject
to an import tariff of 60% to 300% of the vehicles value,
varying by engine size. The import tariff was dropped when
Malaysia began its commitment to reducing import tariffs
under AFTA. At the time of writing, all imported vehicles,
whether CBU or completely knocked-down (CKD), were sub-
ject to two categories of tariffs import duty and excise
duty. The import duty on CBUs was set at 0% for imports
from ASEAN and 30% from MFN (most-favoured nations),
but for locally assembled CKDs, it was 10%. All vehicles,
domestic and foreign, had to pay an excise tax. Depending
on the engine size and type of vehicle, the excise duty ranged
from 60% for a van with an engine below 1,500 c.c. to 105%
for any vehicle above 2,500 c.c. As a result, both locally
assembled and imported foreign vehicles benefited from

16Idris, I. (2009, October 31). Coming to grips with APs. Starbizweek, SBW20-21.

S0218927512500150.indd 354 1/18/2013 3:36:52 PM

 proton: Its rise, fall, and future prospects 355

Malaysias reduction of import duty. In addition to these two

duties, buyers had to pay a 10% sales tax. The details of the
latest duty charges are given in Exhibit 8.
Foreign vehicles were therefore quite expensive in
Malaysia. For a new imported CBU or a locally assembled
German or Japanese CKD vehicle from a non-ASEAN coun-
try, the retail price was usually more than double the price
of the same vehicle sold in a tariff-free country, such as
the USA. In a country with a median monthly income of
MYR2,850 (USD950), foreign vehicles were a luxury17. Hence,
vehicles made by Proton and Perodua, benefiting from a
50% reduction in excise tax and other government rebates,
were the peoples choice18. However, this choice of cheaper
local vehicles came with a costly trade-off against quality
and safety. The absence of stiff competition had encouraged
Proton to keep on producing outdated designs that neglected
basic safety features such as airbags and anti-lock braking
systems for most of its domestic models19.
Although new foreign vehicles were expensive, a
minor- ity of Malaysians still preferred foreign vehicles
because of their reliable performance and quality. Instead
of buying new locally assembled foreign vehicles, they
opted to purchase not-so-old used imports. This resulted
in a large number of used car importers, especially in the
Greater Kuala Lumpur area. The prices of used imports
were not low. Used car prices were still double the price
of similar used cars sold elsewhere. These high prices,
coupled with the relatively low duties, provided high
profit margins for the importers. The relatively low duties
were the result of the governments method for assessing
the value of used vehicles. Although new foreign vehicle
values were easily identified through international dealers
brochures or websites, there was no reliable mechanism or

17http://www.asiaviews.org/index.php?option=com_content&view=article&id=28835

:malaysias-balanced-growth-better-than-singapores-higher-growth&catid=3:column-a-
commentaries&Itemid=10
18Mohmad, J. and Kiggundu, A.T. (2007). The rise of the private car in Kuala

Lumpur Malaysia: Assessing the policy option. IATSS Research, 31(1), 6977.
19Protons Persona was the official car for cabinet ministers in Malaysia until early

2011. These vehicles were not equipped with airbags. See Onn, F.C. (May 1, 2011)
Burden or catalyst? The Star, F38-9.

S0218927512500150.indd 355 1/18/2013 3:36:52 PM

 356 ACRJ

provision for determining the market values for imported

used vehicles. The government had to rely on the used
car dealers to provide the value. Taking advantage of the
opportunity, used car dealers registered very low prices for
their imports, thus avoiding high duties. For the used car
dealers, even after factoring in the hefty fee of MYR40,000
for an AP, the used car import business was still considered
very lucrative. The used car import system had a political
dimension. The original intention in setting up the AP system
was to encourage bumiputera to participate in the used car
dealership business. However, it turned out that most APs
were actually re-sold to non-bumiputera auto dealers, who
dominated the industry. It seemed that most AP holders
would rather sell their licence than operate the business
themselves. This type of rent-seeking behaviour invited a
lot of criticism from consumers and policymakers, including
Mahathir himself 20. The 2009 National Automotive Policy was
an attempt to address this rent-seeking behaviour. Under the
new policy, open APs would be phased out by 2015 and
franchise APs by 2020. A price list of used vehicles would
be gazetted to eliminate the opportunity for under-reporting.
Additionally, with effect from 2010, all APs were subject to a
MYR10,000 (USD3,300) fee rather than being given out free.
All these measures were aimed at phasing out the AP system
within ten years. However, it was anticipated that the adverse
effects on the used car importers would be seen much sooner.
Without open APs, most used car dealers would not be able
to operate.
With regards to the ten thousand ringgit charge for
each AP, the policy explicitly stipulated that the funds
col-lected would be used to assist bumiputera companies
venturing into the automotive trade and other businesses21.
This was consistent with other economic policies that aimed
to promote the interests of bumiputera.

20Othman, A.F. (2010, June 17). Free AP for genuine motor traders Dr. Mahathir.

Business Times. Retrieved April 1, 2011 from http://www.btimes.com.my/Current_

News/BTIMES/articles/mahaafp/Article.
21Ministry of International Trade and Industry (28 October 2009). Media Release:

Review of National Automotive Policy.

S0218927512500150.indd 356 1/21/2013 3:10:23 PM

 proton: Its rise, fall, and future prospects 357

To conclude, Malaysias domestic carmakers, Proton

and Perodua, still enjoyed some protection from the govern-
ment although the level had been reduced in previous
few years. Government protection continued to prevent a
level playing field. The choice of vehicles was limited for
the majority of consumers, whose incomes were low by
international standards. When the 2009 National Automotive
Policy was fully implemented, Malaysians would lose the
choice to buy used imports. Therefore, domestic brands
should continue to dominate the mass market.

Protons Development: A Historical

Perspective

The automotive industry in Malaysia, prior to the launch of

Proton, was almost non-existent. Automobiles were either
imported or assembled locally with imported CKD (completely
knocked down) kits. The first automaker in Malaysia was
a Swedish-Malaysian automobile assembler that began
assembling their CKD kits for the local market in 1967.
In 1981, two years after Mahathir became Prime Minister,
Proton was formed under the National Car Project. Proton
was the Malay acronym for Perusahaan Otomobil Nasional
(in English, National Automobile Enterprise). It was the key
business of its parent, Proton Holdings Berhad, a public
company listed on Bursa Malaysia (formerly, the Kuala
Lumpur Stock Exchange). To launch a national car project,
Malaysia, like other pre-industrialised countries, had to solve
the general problems of weak technological capabilities and
insufficient management talent. The favoured strategy was
to form alliances to acquire the much-needed technology
and management skills. The first Proton partner was Japans
Mitsubishi Motor Corporation, considered at that time to be
the weakest automaker in Japan22. The choice of a Japanese
partner was obvious, as Mahathir adopted the Japanese
development model of heavy government involvement for

22Wad, P. (2009). The automobile industry of Southeast Asia: Malaysia and Thailand.
Journal of the Asia Pacific Economy, 14(2), 172193.

S0218927512500150.indd 357 1/18/2013 3:36:52 PM

 358 ACRJ

Malaysia. However, the reason for choosing Mitsubishi was

not clear. At the very least, it was known that the decision
did not go through a competitive bidding process23. Together,
Proton and Mitsubishi formed an equity joint venture, in
which the latter had 30% ownership while providing 70%
capital in the form of yen loans24. In 1985, the joint venture
rolled out its first automobile, the Saga, a four-door saloon
with a choice of 1.3 or 1.5 litre engines. Saga was a sim-
pler model of the Lancer, a well-established and popular
Mitsubishi model for the mass market. While other compact
models (e.g., Savvy and Satria) were launched to satisfy the
local appetite for small cars, the Saga and its variants (e.g.,
Persona and Waja) remained Protons flagship models. Since
2008, the new Sagas had been equipped with home-produced
engines developed by Proton and its subsidiary, the UK-
based Lotus, which was acquired in 1996. In 2009, Proton
began producing a multi-purpose vehicle (MPV) called the
Exora, thus diversifying its passenger car line-up.
The decision to form a joint venture with Mitsubishi
helped to reduce R&D costs and allowed Proton to manufac-
ture vehicles under its own brand within two years. Proton
also sought to accelerate its learning curve through techno-
logy transfers with its partner. Over the years of partnership
with Mitsubishi, Proton and its alliances developed the
capability for producing some of the components, partially
reducing its reliance on Mitsubishi and other foreign auto
component makers. In addition to producing components,
Proton began designing its own models and in 2001 it
launched the Waja, its first home-designed model. In 2004,
in partnership with Lotus, it launched the Gen-2, a modern
hatchback with homemade Campro engines.
The joint venture with Mitsubishi continued until 2004,
when Mitsubishi suffered financial difficulties at home and
decided to sell off its stake in Proton. Eventually, Mitsubishis
entire stake in Proton was purchased by the Malaysian

23Wain, B. (2009). Malaysian Maverick: Mahathir Mohammad in Turbulent Times.

Palgrave Macmillan.
24Simpson, M., Sykes, G. and Abdullah, A. (1998). Case study: Transitory JIT at

Proton Cars Malaysia. International Journal of Physical Distribution and Logistics

Management, 28(2), 121.

S0218927512500150.indd 358 1/18/2013 3:36:52 PM

 proton: Its rise, fall, and future prospects 359

government, bringing the states effective ownership to nearly

two-thirds of Protons shares: 42.74% by Khazanah Nasional
Berhad, the governments investment agency; 10.72% by the
Employees Provident Fund Board, the nations only retire-
ment fund manager for both private and public sectors; and
7.85% by Petronas, a wholly state-owned company. Thus,
Proton was undoubtedly a state-owned automaker. With the
government as the majority shareholder, it was not surprising
that Mr. Syed Zainal proclaimed, Im a Malaysian first and
a businessman secondIm not a civil servant, but part of
my job is a social and national obligation I have to adhere
to25. This nationalist orientation was evident from the role
that Proton played in carrying out the governments NEP
programmes. Under Protons vendor system, only bumiputera
suppliers could sell auto parts to Proton, even if their prices
were 50% higher than Proton could have paid elsewhere26.
These suppliers were also given grants to learn the trade and
master the technology. This was how Mahathirs vision of
creating a full-fledged and self-sufficient auto industry was
implemented.
An adverse effect of Mitsubishis withdrawal was the
deteriorating quality of Proton products. Customers perceived
the quality of Proton vehicles to be better when they were
still produced in partnership with Mitsubishi. They also felt
that vehicles produced by Protons domestic rival, Perodua,
were of higher quality and they were even willing to pay a
premium for similar models produced by Perodua27. Protons
1996 acquisition of Lotus, the British sports car company,
was viewed with scepticism and did not appear to improve
Protons image28. Commentators questioned the value of
acquiring an established but sleeping brand known for its
sports cars when Protons products were meant for the mass

25Ellis,
ibid.
26Tan, P. (2008, July 15). Protons vendor network needs discussion. Retrieved
April 2, 2011 from http://www.btimes.com.my/Current_News/BTIMES/articles/
mahaafp/Article.
27The comparison of quality of Proton and Perodua was widely discussed in local

motor blogs. See http://www.motortrader.com.my/forums/topic.asp?TOPIC_ID=587

and http://forum.lowyat.net/topic/1076443 (Retrieved 2010, May 21).
28Anonymous (2007, Nov. 17). Business: Lost compass Proton. The Economist, p. 79.

S0218927512500150.indd 359 1/21/2013 3:10:57 PM

 360 ACRJ

market29. In addition, Lotus had been losing money ever since

and had yet to provide any profit to its parent, Proton.
Protons involvement in the UK market went well
beyond its investment in Lotus. It entered the UK market
in 1989 where its sales peaked at 15,000 in 1992, and fell
steadily to 1,518 in 2008. The decline was attributed to the
British demand for higher quality and safety standards,
local competition and inadequate after-sales service. Proton
had also tried selling its cars in other developed countries
including Singapore and Australia, where its major customers
were rental car companies. Overall, Protons exports had
been small. In 2009/2010, its total exports were below 25,000
units, although there was some optimism over the market in
developing countries, particularly China, India and Iraq.
To expand its sales internationally and domestically,
Proton knew it needed to improve its technology. After
the divestment of stake by Mitsubishi Motors, Proton held
several rounds of discussion with global automotive original
equipment manufacturers (OEMs), including General Motors
(GM), Peugeot and, more recently, Volkswagen AG. The
discussions went nowhere as none of the global automakers
were willing to form alliances on the terms stipulated by
Proton. Eventually, Mitsubishi agreed to form another alliance
with Proton, but only on a project basis.

Birth of Perodua: Competition for Proton

Malaysias second national automaker was Perodua

(Perusahaan Otomobil Kedua Sdn Bhd, or Second Automobile
Manufacturer Private Limited). It began in 1993 as a joint
venture with Malaysian and Japanese partners. The two
largest shareholders were the government-linked UMW
Corporation Berhad, with 38% of the shares, and Japans
Daihatsu Motor Co. Ltd., a subsidiary of Toyota, with 20%
of the shares30. Since its launch, Perodua had been viewed

29Johari, S. (2011, January 24). Lotus limbers for lift-off. Business Times. Retrieved
April 2, 2011 from http://www.btimes.com.my/articles/lot23f/Article/
30Official website of Perodua, www.umw.com.my

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 proton: Its rise, fall, and future prospects 361

as a strong competitor for Proton. Over the years, it eroded

Protons market share (Exhibit 1). In 1995, two years after
its inception, Peroduas share of the domestic passenger
market was 17% compared to Protons 61%31. But, since 2006,
Peroduas total vehicle sales had exceeded those of Proton. In
2010, it led the market with a 31.2% share, followed by Proton
(26.0%), UMW Toyota (15.1%), Honda Malaysia (7.4%), and
Nissan (5.7%).
Peroduas strategy was not to compete directly with
Proton. It produced sub-compact passenger vehicles with
an engine size of around 1,000 c.c., whereas Proton focused
on the 1,300 to 1,600 c.c. market. The sub-compact market,
however, had experienced the highest growth rate in
Malaysia over the past two decades. In 2006, Peroduas
Myvi, with engine sizes from 1,000 to 1,300 c.c., outsold
Protons subcompact model Savvy by more than three to
one. Peroduas strength stemmed from its partnership with
Daihatsu, which allowed Perodua to apply a lean manu-
facturing system and just-in-time inventory system; the
well-known practices of Daihatus parent, Toyota. Peroduas
success, combined with exclusive dealerships for Lexus and
other Toyota vehicles, made UMW Corp. the countrys market
leader in auto sales32.
Because of its status as a national automaker, Perodua
enjoyed the same protection and advantages given by the
government to Proton. For example, during the global finan-
cial crisis in the latter half of 2009, the Malaysian government
launched its version of the cash for clunkers program
by providing a cash rebate of MYR5,000 (or USD1,420) for
Malaysians to trade in their 10-year old or older vehicles for
either Perodua or Proton products,33 but not for other brands.
Like Proton, Perodua also benefited from the 50% excise tax

31Total passenger vehicle sales in 1995 were 229,626, of which Proton sold 140,647

and Perodua sold 39,906. Mahidin, M.U. and Kanageswary, R. (2004). The development
of the automotive industry and the road ahead. Department of Statistics Malaysia,
p. 13.
32Company website.
33Yunos, S. (2009, Nov. 13). RM5,000 rebate stopped. Malay Mail. Retrieved May 10,

2010, from http://www.mmail.com.my/content/18800-rm5,000-rebate-stopped

S0218927512500150.indd 361 1/21/2013 3:11:41 PM

 362 ACRJ

rebate, allowing them a much lower tax burden compared

with foreign carmakers.

External Developments and Their

Implications for Proton

AFTA was a trade agreement among ASEAN member

countries and its implementation had important implications
for Protons future strategy and performance. ASEAN coun-
tries shared the belief that an economically integrated South-
East Asia would bring prosperity to the region as a whole,
and that establishing a free-trade area was an important pre-
requisite for further economic integration and the eventual
goal of monetary union. AFTA was created in 1992, under
the Singapore Declaration signed by the original six ASEAN
members (Brunei, Indonesia, Malaysia, Philippines, Singapore
and Thailand; or ASEAN-6). The goal was to establish a
completely free-trade area within ASEAN countries within
15 years through the Common Effective Preferential Tariff
(CEPT) Scheme. The specific objectives of AFTA were to
increase ASEANs competitive advantage as a production
base in the world market, first by eliminating, within ASEAN,
tariff and non-tariff barriers for products on the CEPT
inclusion list, and second by attracting more foreign direct
investment to ASEAN countries34.
Little progress was made in the first ten years after
1992. A turning point was finally reached on January 1, 2003,
when the ASEAN-6 set import tariffs at between 0 and 5%
for almost all manufactured goods and processed agricultural
products from other member countries. By 2010, the six mem-
ber countries were expected to completely eliminate the tariffs
on goods manufactured by other member countries. The most
recent members of ASEAN, Cambodia, Myanmar, Laos and

34Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the
ASEAN Free Trade Area. Official website of Association of Southeast Asian Nations
(ASEAN). Retrieved May 16, 2010, from http://www.asean.org/12375.htm. Also see
The ASEAN Secretariat. ASEAN Free Trade Area (AFTA): Towards a single ASEAN
market.

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 proton: Its rise, fall, and future prospects 363

Vietnam (CMLV countries), also signed the AFTA agreement

on entering ASEAN, but were permitted to honour their
commitment at a later stage.
As a member of ASEAN-6, and also as a majority
shareholder of Proton and the indirect owner of Perodua, the
Malaysian government faced a dilemma over how to fulfil its
commitment to ASEAN while ensuring the competiveness
of the two national automakers. In an effort to do both,
Malaysia requested a two-year deferral of the tariff reduction
from ASEAN. However, Malaysia was able to begin its com-
mitment after only a one-year delay by lowering its import
tariff on automobiles as stipulated by AFTA, while at the
same time increasing excise duty from zero to over 60%
(Exhibit 8). The overall effective tax rate on imported CBUs or
CKDs did drop, but not as much as was intended by AFTA.
The further integration of the ASEAN economies
posed both opportunities and threats for Proton. The overall
ASEAN automobile market had been growing and the total
sales reached about 2.5 million units in 2010 (Exhibit 9).
Among the 10 ASEAN countries, Thailand had the biggest
domestic market at 800,357 vehicles, followed by Indonesia
(764,710) and Malaysia (605,156). Thailand was also the
biggest production base in the region for various foreign
brands. Its auto output was close to 1.7 million, recovering
from the previous years low of 1 million. Its production also
exceeded the combined sales in Indonesia and Malaysia. The
year-on-year growth of the ASEAN auto markets in 2010
was spectacular at 32%. In terms of the potential growth in
domestic consumption, Thailand and Indonesia seemed to
be more promising because of their larger populations and
lower penetration (Exhibits 9 and 10). Among the three, the
Indonesian market was the most attractive, outgrowing both
Thailand and Malaysia in 2010. The three markets differed
in their preferred type of vehicle; the Thais tended to buy
pick-ups, the Indonesians preferred three-row MPVs, and
Malaysians favoured sub-compact cars. It was not surprising
that Thailand specialised in commercial vehicles, Malaysia in
passenger cars and Indonesia in non-car passenger vehicles,
although this situation could change given the rapid growth
in Indonesia and its recent pro-FDI initiatives.

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 364 ACRJ

Historically, the most formidable automakers in the

ASEAN region had been the Japanese (Exhibit 11). In 2008,
out of 2 million new vehicles sold in ASEAN countries, about
86%, or some 1.72 million units, were produced by Japanese
automakers or their local joint venture partners35. Among
the South-East Asian countries that had an automotive
industry, Malaysia was the only one that had its own national
brands. Other ASEAN countries had chosen to develop
their auto industry by providing incentives to attract foreign
automakers to manufacture in their countries. For example,
Thailand, dubbed as the Detroit of Asia, changed its auto-
motive policy and began introducing FDI incentives after
the Asian currency crisis. More recently, in 2008 it started to
offer eight-year corporate tax breaks and duty-free machinery
and equipment imports to companies that invested in
manufacturing small eco-cars36. This contributed to Thailands
quest to establish itself as the powerhouse of automobile
manufacturing in the ASEAN region. In 2009, the Thai auto
sector as a whole contributed 10% of the nations GDP and
employed 150,000 people37. Vehicles and auto parts were
Thailands second largest export. Its CBU export sales were
the largest among the ASEAN countries, reaching 895,855 in
2010 and exceeding its domestic sales.
As Protons 2011 annual report stated, the ASEAN
market presented tough competition: in ASEAN, customers
were spoilt for choice with the overwhelming introduction
of new models38. Thus, it was not surprising that Protons
exports went mostly to non-ASEAN countries. In 2009/2010,
its major export markets were the UK, Australia, the Middle
East, China and Iraq.

35Japanese Automobile Manufacturers Association, Inc. (2009). Powering up Hand in

Hand 2009: Partnership in the Auto Industry between ASEAN and Japan, p. 11. Retrieved
May 3, 2010, from http://www.jama-english.jp/asia/publications/pamphlets/hand_
in_hand_2009.pdf
36Mark, B. (2009, September 1). ASEAN automotive market review. Management

Briefing. Retrieved May 5, 2010, from http://www.just-auto.com

37Sosothikul, P. (2010, April 19). Thai auto industry setting the pace in Asia. Bangkok

Post. Retrieved May 21, 2010, from http://www.bangkokpost.com/news/asia/36296/

thai-auto-industry-setting-the-pace-in-asia
38Proton Holding Bhd. (2011). Annual Report, p. 94.

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 proton: Its rise, fall, and future prospects 365

Developments within Malaysia and Protons

Continued Struggles to Find a Partner

Several other developments within Malaysia had important

implications for Proton. The 2009 National Automotive Policy
in Malaysia, effective from 2010, allowed foreign carmakers
to establish 100% owned facilities to produce passenger
vehicles with an engine capacity of 1,800 c.c. and above, and
priced above MYR150,000 (approximately USD50,000). In
other words, there were no longer any restrictions on equity
ownership for foreign automakers producing expensive
passenger vehicles in Malaysia. Furthermore, from June 2011,
imports of used automotive parts and components would no
longer be allowed. The policy also called for the provision of
incentives for the local assembly and manufacture of hybrid
and electric vehicles and their components, with a temporary
exemption of excise tax on such vehicles of 2,000 c.c. or
below, in the first half of 2011. Toyota and Honda seized this
incentive and their hybrid vehicles sold well. To follow this
changing trend in customer preference, Proton announced
that it would launch a hybrid model in about two years time.
After its fallout with Proton, Volkswagen AG entered
an agreement with DRB-HICOM to produce CKD Volkswagen
vehicles. Proton, meanwhile, renewed its collaboration with
Mitsubishi Motors to produce a new executive model, Inspira,
with 1.8L to 2.0L engines. But in reality, Inspira was simply
another rebadged Mitsubishi Lancer, demonstrating Protons
lack of depth and continued dependence on Mitsubishi
for engineering and product design39. Responding to the
repeated failures to form partnerships with global OEMs, the
Malaysian government began to promote the idea of merging
Proton and Perodua. However, this idea did not seem to be
welcomed by Perodua40.

39Tan, P. Retrieved April 1, 2011 from http://paultan.org/2010/11/10/proton-

inspira-launch
40Mahalingam, E. (2011, March, 21) Questions for the auto industry. The Star, B4.

S0218927512500150.indd 365 1/18/2013 3:36:52 PM

 366 ACRJ

Protons Future Strategies amidst

Challenges

The development of the ASEAN-India and ASEAN-China

bilateral free-trade agreements offer both optimism and
concern to Mr. Syed Zainal, the M.D. of Proton. The two free-
trade agreements are expected to generate opportunities to
increase automotive trade between the ASEAN, Indian and
Chinese auto industries. Eventually, Chinese and Indian made
automobiles and components will be allowed to be exported
to ASEAN countries with zero import tariffs, and vice versa.
In addition, Toyota has indicated that it plans to make India
its small car hub, and Chinas Chery and Geely, two privately
owned, young and energetic Chinese carmakers, have set
their sights on the ASEAN market. All of these suggest new
opportunities for Proton, such as potential exports to India
and China, but also the threat of increasing competition in
both domestic and regional markets.
It seems clear that the initial withdrawal of Mitsubishi
signalled the beginning of a downturn for Proton. Furthermore,
in 2010, its major production facilities in Tanjung Malim
operated at only 50% capacity. Although the facilities are
attractive to foreign automakers, the failed partnership dis-
cussions with Volkswagen AG, Peugeot and General Motors
indicate that foreign partners prefer ownership control in any
joint venture with Proton, which Proton seems to be reluctant
to concede41. Given the saturation of the domestic automotive
market, Proton must focus on increasing its share of the
domestic market and expanding its export market, although
its export sales have also been weak. Amidst all these con-
straints, threats and opportunities, what strategies should
Proton adopt to reverse its declining market share and ensure
long term survival?

41Ellis, ibid.

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 proton: Its rise, fall, and future prospects 367

Exhibit 1: Market share of ProtonExhibit 1

and Perodua in Malaysia (%) 19952010

Market Share of Proton and Perodua in Malaysia (%) 19952010

Market share %

60

50

40

30 PROTON
PERODUA
20

10

0 Year

Source: Malaysian Automotive Association (MAA); Business Monitor International. Malaysia

Autos Report, various issues.

Source: Malaysian Automotive Association (MAA); Business Monitor International. Malaysia Autos Report, various issues.

23

S0218927512500150.indd 367 1/18/2013 3:36:53 PM

 368 ACRJ

S0218927512500150.indd 368
Exhibit 2

ComparisonExhibit
of Key2:Financial of Key
ComparisonData Financial
and Ratios Data
and Ratios
Proton - Proton
and otherand other Leading
Leading AsianAsian
Automobile Manufacturers in 2007-2010
AutomobileManufacturers in 20072010

Proton Honda* Toyota*

Year 2010 2009 2008 2007 2010 2009 2008 2007 2010 2009 2008 2007
Total Sales $2,571# $1,901 $1,671 $1,304 $92,210 $99,833 $120,028 $93,919 $200,406 $208,995 $262,394 $202,864
(US$ million) ##
Net Margin 2.66% 4.63% 3.28% 12.19% 3.13% 1.37% 5.00% 5.34% 1.11% 2.13% 6.53% 6.87%
Total Asset 1.10 0.92 0.77 0.67 0.74 0.85 0.95 0.92 0.64 0.67 0.81 0.78
Turnover
Equity 1.41 1.40 1.35 1.37 2.69 2.95 2.78 2.69 2.93 2.89 2.73 2.75
Multiplier**
Return on Equity 4.11% 5.97% 3.40% 12.18% 6.20% 3.42% 13.20% 13.21% 2.05% 4.34% 14.47% 13.89%
Inventory 6.70 4.67 5.11 3.68 9.17 8.05 10.04 9.37 10.60 10.33 11.04 10.42
Turnover
Source: Authors
Source: Authors computation based
computation based on company
on company annualannual reports
reports and and Compustat
Compustat Database Database.
#Assumes an exchange rate of RM3.2 per $US.
# Assumes an exchange rate of RM3.2 per $US
##Assumes an exchange rate of Y94.56 per $US.
##Assumes an exchange rate of Y94.56 per $US
*Data
*Dataare
arefor
for fiscal
fiscal years ending
yearsending on March
on March 31st 31st.
**Equity
**EquityMultiplier
Multiplier ==Total Assets/Shareholders
Total Assets/Shareholders and is used
Equity Equity andtoisevaluate
used to use of financial
theevaluate the useleverage
of financial leverage.

1/18/2013 3:36:53 PM
24
 proton: Its rise, fall, and future prospects 369

Exhibit 3

Selected
ExhibitFinancial
3 SelectedData and Ratios
financial of Proton
Data and Ratios ofHoldings Berhad Berhad
Proton Holdings for the Fiscal
for theYears 2006 to
fiscal years 2010
2006
to 2010 (Ending(Ending March 31st. Money amounts are expressed in MYR 000)
March 31st. Money amounts are expressed in MYR '000)

Data/Ratio 2010 2009 2008 2007 2006

Revenues 8,226,859 6,518,754 5,621,594 4,687,330 7,796,932
EBIT 272,946 (304,792) 162,252 (582,588) 61,863
EBIT/Revenues 3.32% -4.68% 2.89% -12.43% 0.79%
Net income 218,932 (301,806) 184,551 (618,129) 46,394
Net income/Revenue 2.66% -4.63% 3.28% -13.19% 0.60%
Total assets 7,505,152 7,098,898 7,293,348 6,946,767 8,312,775
Total assets turnover (times) 1.10 0.92 0.77 0.67 0.94
Current assets 3,880,614 3,404,586 3,446,084 3,165,540 4,430,973
Fixed assets 3,587,607 3,657,900 3,847,264 3,781,227 3,881,802
Fixed asset turnover 2.29 1.78 1.46 1.24 2.01
Cash & equivalenta 1,661,765 929,163 1,246,832 699,923 1,797,947
Tax recoverable 25,301 160,610 114,479 176,048 51,491
Trade, div. & other receivables; dues 966,336 919,732 984,487 1,015,957 1,192,530
from subsidiaries, asso. companies &
jointly controlled cos.
Average collection period (days) 43 51 64 79 56
Inventory, net 1,227,212 1,395,081 1,100,286 1,273,612 1,389,005
Inventory turnover (times) 6.70 4.67 5.11 3.68 5.61
Current liabilities 2,072,773 1,883,599 1,639,180 1,533,788 2,341,063
Current ratio (times) 1.87 1.81 2.10 2.06 1.89
A/P & other dues to subsidiaries, asso. 83.66% 73.34% 92.97% 99.36% 55.63%
Cos. & jointly controlled cos. As a % of
current liabilities
Short term borrowings 142,236 306,039 113,606 164,426 804,766
Total debt to total assets 28.94% 28.75% 25.67% 26.95% 22.52%
Equity multiplier (times) 1.41 1.40 1.35 1.37 1.29
Return on equity (ROE) 4.11% -5.97% 3.40% -12.18% 0.72%
Return on assets (ROA) 2.92% -4.25% 2.53% -8.90% 0.56%
NOPAT (net operating profit after tax)b 296,137 (357,002) 101,046 (559,016) 33,026
Operating assetsc 2,624,418 2,827,111 3,174,477 3,179,439 3,312,947
NOPAT/Operating assets 11.28% -12.63% 3.18% na 1.00%
Expenditure for fixed assets, intangible 417,037 700,413 565,824 499,358 478,451
assets and other long term assetsd
EPS (MYR) 0.40 (0.55) 0.336 (1.073) 0.085
Shares outstanding (thousands) 549,213 549,213 549,213 549,213 549,213
% of shares owned by top two
shareholders 53.46 58.64 56.27 50.63 49.25
Dividend per share (MYR) 0.20 0.05 0 0.05 0.10
(Dividend) Payout ratio 50.00% na na na 117.65%
Stock price on March 31st (MYR)e 4.71 1.58 3.86 6.65 5.70
KLSE Index on March 31st 1,336 907 1,222 1,247 927
Book value of equity per share (MYR) 9.70 9.30 9.90 9.50 10.70
Source: Bloomberg; Proton Holdings Berhad. Annual Reports (20062010).
Source: Bloomberg; Proton Holdings Berhad. Annual Reports (2006-2010).
Notes:
a. current investment & bank deposits.
Notes:
b. NOPAT = profit/loss before finance cost - tax.
c. Operating
a. assets =&
current investment property, plant & equipment & prepaid land lease payments.
bank deposits
d.b.As
NOPAT
shown= in profit/loss
the cashbefore
flow finance cost - tax
statement.
c. Operating assets = property, plant & equipment & prepaid land lease payments
e. Proton share prices are adjusted for capitalization changes.
d. As shown in the cash flow statement.
e. Proton share prices are adjusted for capitalization changes

S0218927512500150.indd 369 1/18/2013 3:36:53 PM

 370 ACRJ

S0218927512500150.indd 370
Exhibit 4

Exhibit
Sales Sales and Production
and4:Production of Motor
of Motor Vehicles in
Vehicles inMalaysia
Malaysia(units) 1995-2010
(units) 19952010
Sales (units) Production (units)
Year Total passenger Total 44 vehicles Total vehicles Total passenger Total 44 vehicles Total vehicles
vehicles commercial sales vehicles commercial production
vehicles vehicles
1995 224,991 47,235 13,566 285,792 231,280 45,805 11,253 288,338
1996 275,615 69,444 19,729 364,788 280,222 65,751 19,148 260,970
1997 307,907 70,334 26,596 404,837 337,717 77,784 23,192 407,347
1998 137,691 17,641 8,519 163,851 143,756 10,337 7,363 161,456
1999 239,647 26,171 22,729 288,547 257,607 25,898 20,474 303,979
2000 282,103 33,732 27,338 343,173 295,318 37,552 27,235 360,105
2001 327,447 37,623 31,311 396,381 355,863 40,916 31,922 428,701
2002 359,934 42,727 32,293 434,954 380,050 44,046 32,727 456,822
2003 320,524 50,882 34,339 405,745 327,450 65,554 33,642 426,646
2004 380,568 70,948 36,089 487,605 364,852 75,384 31,739 471,975
2005 416,692 97,820 37,804 552,316 422,225 95,662 45,623 563,510
2006 446,172 44,596 33,559 490,768 377,952 96,545 28,551 503,048
2007 442,885 44,291 - 487,176 403,245 38,433 - 441,678
2008 497,459 50,656 - 548,115 484,512 46,298 - 530,810
2009 486,342 50,563 - 536,905 447,002 42,267 - 489,269
2010 543,394 61,562 - 605,156 522,568 45,147 - 567,715
Source:
Source: Malaysian Automotive
Malaysian Automotive Association
Association (MAA).
(MAA). Retrieved Retrieved
April April
1, 2011 from 1, 2011 from http://www.maa.org.my/info_summary.htm;
http://www.maa.org.my/info_summary.htm; Business
Business Monitor International. Malaysia Monitor
Autos Report. Q4, International.
2009
and Q1, 2010.
Malaysia Autos Report. Q4, 2009 and Q1, 2010.
Note:
Notes:
1. The passenger vehicle industry was reclassified in January 2007 and includes all passenger carrying vehicles, i.e., passenger cars, 4WD/SUVs, window vans and MPV models
1. The passenger vehicle industry was reclassified in January 2007 and includes all passenger carrying vehicles, i.e., passenger cars, 4WD/SUVs, window
2. Commercial vehicles were also reclassified on 1 January 2007 and includes all trucks, prime movers, pick-ups, panel vans, buses and others
vans and MPV models.
2. Commercial vehicles were also reclassified on 1 January 2007 and includes all trucks, prime movers, pick-ups, panel vans, buses and others.

26

1/18/2013 3:36:53 PM
 proton: Its rise, fall, and future prospects 371

Exhibit 5

Key Industrial Directives Under Malaysias National Economic Policy

1. Foreign companies that apply for licences to operate in Malaysia need to form a partnership
with a bumiputera partner recommended by the Ministry of International Trade and Industry
(MITI).

2. Initial Public Offerings (IPOs) to be listed on the Kuala Lumpur Stock Exchange are required
to set aside a 30% quota to bumiputera investors. The corporate equity should continue to
consist of a minimum of 30% bumiputera equity holders.

3. Under the Industrial Coordination Act (ICA), big companies should employ a minimum of
30% bumiputera and there should be bumiputera among the senior executives.

4. To bid for government contracts, companies should meet the requirement of 51% bumiputera
equity holding.

5. Government-linked companies are required to give preference to bumiputera businessmen

when outsourcing services.

6. Imported cars dealers must obtain approved permits (import licences) for their imports.
However, approved permits are only granted to bumiputera companies that have 100%
bumiputera shareholders.
Source: Chin, J. (2009). The Malaysian Chinese dilemma: The never ending policy (NEP). Chinese Southern Diaspora Studies,
Vol. 3, p/167182.

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 372 ACRJ

Exhibit 6
Exhibit 6: Proton Time Line
Proton Time Line

Month/Year Event
1957 Malaysias independence.
1962 Ford Motor of Malaya was established, providing limited services
including body repair, paint touch-up & wheel changes. This marked the
beginning of Malaysias automobile industry.
1967 The first six assembly plants were established to assemble CKD
(completely knocked-down) vehicles.
Dec. 1967 Swedish Motor Assemblies Sdn. Bhd., the first foreign assembler, began
production.
1981 Dr. Mahathir bin Mohammad became Prime Minister.
1983 Under the National Car Project, Proton (Perusahaan Otomobil
Nasional) was established.
1985 Proton began producing its Saga model jointly with Mitsubishi Motors
Corporation of Japan.
1992 The second national automobile manufacturer PERODUA, was
established.
1992 Proton Holdings Bhd. was listed on the Kuala Lumpur Stock Exchange.
Oct. 1996 Acquired 100% of Lotus Group International Limited, a British
automotive engineering company and a manufacturer of luxury sports
cars.
Dec. 30, 1996 The launch of PUTRA, a two-door coupe, and the 100 millionth car was
produced.
2003 Dr. Mahathir resigned as Prime Minister.
2004 Purchased Italian Agusta motorcycle unit for Euro70 million (MYR510
million).
2004 Launched Gen-2, a hatchback with Lotus modern design and a locally
built engine, the Campro 16V-four pot.
2005 Disposed of Agusta motorcycle unit for the token price of one euro.
2005 Perodua overtook Proton as the biggest domestic automobile
manufacturer, with a 41.6% share of the passenger car market.
20042007 Negotiated with Volkswagen AG of Germany in the hope of forming a
joint venture primarily for technology transfer. However, the negotiations
eventually failed because of irresolvable expectations.
2006 The first National Automotive Policy was issued.
Dec. 2008 Signed a contract for production and development of new models with
Mitsubishi.
Oct. 2009 The second National Automotive Policy was issued.
Source: Compiled by the authors.
Source: Compiled by the authors

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 proton: Its rise, fall, and future prospects 373

Exhibit 7

Economic Contribution
Exhibit 7: Economic of Malaysias
Contribution Automotive
of Malaysias SectorSector
Automotive Historical Data
Historical & Forecasts
Data & Forecasts

2006 2007 2008 2009

GDP (USD billion) 156.20 179.60 214.70 227.00
Contribution to GDP (%) 2.78 5.41 5.13 4.88
Total stock of passenger cars 4.00 3.85 3.70 3.57
(CBUs; million)
Sector employment (000) 46.70 48.20 49.70 51.20
Source: Business Monitor International. (2009). Malaysia Autos Report Q1, 2010, p. 22.
Source: Business Monitor International. (2009). Malaysia Autos Report Q1, 2010, p.22.

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 374 ACRJ

Exhibit 8
Duties8:and
Exhibit Taxes
Duties andon Motor
Taxes Vehicles
on Motor in Malaysia
Vehicles (as (as
in Malaysia at March 31,31,
at March 2011)
2011)

(A) Motor cars (Including station wagons, sports cars and racing cars)
Engine CBU CKD MSP Local Taxes
capacity (cc) MFN ASEAN MFN ASEAN MFN ASEAN Excise Sales Tax
CEPT CEPT CEPT Duty
<1,800 75%
1,800-1,999 80%
2,000-2,499 90%
Above 2,500 30% 0% 10% 0% 10% n/a 105% 10%

(B) Four wheel drives

Engine CBU CKD MSP Local Taxes
capacity (cc) MFN ASEAN MFN ASEAN MFN ASEAN Excise Sales Tax
CEPT CEPT CEPT Duty
<1,800 65%
1,800-1,999 75%
2,000-2,499 30% 0% 10% 0% 10% n.a. 90% 10%
Above 2,500 105%

(C) Others (MPVs & Vans)

Engine CBU CKD MSP Local Taxes
capacity (cc) MFN ASEAN MFN ASEAN MFN ASEAN Excise Sales Tax
CEPT CEPT CEPT Duty
<1,500 NIL NIL 60%
1,500-1,799 65%
1,800-1,999 30% 0% 10% 0% 10% n.a. 75% 0%
2,000-2,499 90%
Above 2,500 105%

(D) Commercial vehicles

Engine CBU CKD MSP Local Taxes
capacity MFN ASEAN MFN ASEAN MFN ASEAN Excise Sales Tax
(cc) CEPT CEPT CEPT Duty
All 30% 0% NIL 0% NIL n.a. NIL 10%
Source: Malaysian Automotive Association. Retrieved March 31, 2011 from http://www.maa.org.my/info_duty.htm
Source: Malaysian Automotive Association. Retrieved March 31, 2011 from http://www.maa.org.my/info_duty.htm
Notes:
ASEAN
Notes: = Association of Southeast Asian Nations
CEPT
ASEAN= Common Effective
= Association Preferential
of Southeast AsianTariff Scheme
Nations
CEPT
CBU = Common Effective
= Completely built up Preferential Tariff Scheme
CBU= =Completely
CKD Completelyknocked
built up down
CKD = Completely knocked down
MFN = Most favoured nation
MFN = Most favoured nation
MSP
MSP ==Multi-sourcing
Multi-sourcingparts
parts
n.a.
n.a. = notapplicable
= not applicable

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S0218927512500150.indd 375
Exhibit 9

Auto
Exhibit Sales
9: Autoand
Sales Production
and Production in ASEAN
in ASEAN Countries
Countries

Country Passenger Commercial Total Total Change over Total sales Passenger Commercial Total Total Change over Total
vehicles vehicles vehicle sales vehicle 20092010 of vehicles vehicles vehicles vehicles 2009-2010 production
in sales in motorcycles produced in produced in of
2010 2009 and scooters 2010 2009 motorcycle
in 2010 and scooters
in 2010
Brunei 12,549 1,040 13,589 12,365 10% n/a n/a n/a n/a n/a n/a n/a
Indonesia 541,475 223,235 764,710 483,550 58% 7,398,644 496,524 205,984 702,508 464,816 51% 7,395,390
Malaysia 543,594 61,562 605,156 536,905 13% 468,175 522,568 45,147 567,715 489,269 16% 467,941
Philippines 58,691 109,799 168,490 132,444 27% 759,849 33,161 47,316 80,477 62,523 29% 813,361
Singapore 47,273 4,618 51,891 79,503 35% 8,281 n/a n/a n/a n/a n/a n/a
Thailand 346,644 453,713 800,357 548,871 46% 1,845,997 554,387 1,090,917 1,645,304 999,378 65% 2,024,599
Vietnam 58,105 53,632 111,737 119,460 6% n/a 56,836 49,330 106,166 107,760 1% n/a
Total 1,608,331 907,599 2,515,930 1,913,098 32% 10,480,946 1,663,476 1,438,694 3,102,170 2,123,746 46% 10,701,291

Source: ASEAN Automotive Federation. Retrieved April 1, 2011 from http://www.asean-autofed.com/files/AAF_Statistics_2010.pdf

Source: ASEAN Automotive Federation. Retrieved April 1, 2011 from http://www.asean-autofed.com/files/AAF_Statistics_2010.pdf
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31
 376 ACRJ

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Exhibit 10

Exhibit 10:Key Statistics of

Key Statistics ofASEAN
ASEANcountries
Countries

Country Population Size of economy in 2009 Motor vehicles (passenger Nominal GDP per capita GDP per capita PPP in
(Millions of USD) & commercial) per 1000 in 2008 (USD) 2009 est. (USD)
people
USA 307,212,123 14,093,309 765 45,230 46,400
Luxembourg 491,775 52,296 686 111,743 78,000
Malaysia 25,715,819 221,773 641 8,197 14,800
Japan 127,078,679 5,068,996 543 38,578 32,600
Singapore 4,657,542 181,948 158 39,423 50,300
Thailand 65,998,463 272,429 152 4,187 8,100
Philippines 97,976,603 161,195 31 1,866 3,300
Indonesia 240,271,522 510,730 21 2,247 4,000
Vietnam 88,576,758 90,645 7 1,041 2,900
Source: http://www.nationmaster.com/graph/tra_mot_veh-transportation-motor-vehicles (accessed on May 20, 2010); www.cia.gov; United Nations Statistics
Source: http://www.nationmaster.com/graph/tra_mot_veh-transportation-motor-vehicles (accessed on May 20, 2010); www.cia.gov; United Nations Statistics
http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm
http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm

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 proton: Its rise, fall, and future prospects 377

Exhibit 11
Exhibit 11: Output of Japanese Automobile Manufacturers and their Counterparts in ASEAN Countries
Output
in 2008 (Units)of Japanese Automobile Manufacturers and Their Counterparts in
ASEAN Countries in 2008 (Units)
700,000

600,000 575,767 569,449

500,000

400,000 382,632

300,000

200,000

100,501
100,000
40,153 50,305

-
Indonesia Malaysia Philippines Thailand Vietnam Singapore
Source: Japan Automobile Manufacturers Associations, Inc. (2009). Powering Up Hand in Hand, p. 11.

Source: Japan Automobile Manufacturers Associations, Inc. (2009). Powering up Hand in Hand, p.11.

33

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