The Proton Saga: An Ongoing Example Of Analysis Gone Bad

I was reading an article (link below) in the Edge Financial Daily (effectively the Sun's business section) by Thomas Soon & Surin Murugiah entitled "Khazanah's Proton dilemma" and was attracted to the comment made that,"...no local player could offer any real value to Proton, with or without any foreign strategic partner...", based on their polling of a small group of "automotive" analysts.

http://203.115.192.58/cms/content.jsp?id=com.tms.cms.article.Article_e2b05589-cb73c03a-88b1e600-4db7a3e8

It would appear that these writers may have forgotten to sample a sufficiently large pool before penning a conclusion as, if I may myself analyse (being probably as qualified as those polled), there is one thing that the local players mentioned can bring that adds value to Proton, proper MANAGEMENT.

Proton currently doesn't have proper management, hence, even a profitable local Cokodok producing company can 'add value' to Proton. The Proof? Consider this...

1. Malaysia has the largest Passenger Car market in South East Asia, with the no 2 and 3 largest markets being its neighbours Thailand and Indonesia respectively.
2. Proton's home market is protected, pretty much guaranteeing a good margin for local car manufacturers, especially before the disaster that is the National Automotive Policy. And even with the disaster, other local manufacturers are making some money.
3. Proton has cost superiority over all its competitors, having the largest and most modern production facility in ASEAN at Proton City, able to produce a car in less than 1 minute, 365/24/7! Its cost superiority is especially true for its newer models where own design IP is as high as 90% by some accounts.
4. Globally and historically, all types of car companies have been shown to have the resilience to maintain control of at least 20% of its home market, whether they be Volvos, GMs, Tatas or indeed Protons, relying on strength of locality... unless they do something really stupid...

However, despite all these natural advantages, Proton is still not able to make a buck? Come on, something doesn't make sense here! When you consider the many errors committed by the current management of Proton, such as:

1. Letting the original VW negotiations collapse (and not even wondering why this happened the day after they sold MV Agusta, when VW clearly wanted a hand on Proton's technology arm... which included MV Agusta...)
2. Not stopping Wira production when the Gen-2, the Wira replacement model, rolled out. What, did they forget? Did they think that the Wira was such a great car - a car that even taxi drivers shunned in favor of the old warhorse Iswara?! This messed up their marketing, production, product portfolio balance, stocks management, what have you!
3. Not addressing the poor quality vendor issue till now! We know la some of these vendors have political links, but come on la, where is your so called integrity Mr. Chairman of Proton? I thought you were going to usher in a new era of the defect free Proton?
4. Record losses, the first conviniently hidden by the MV Agusta sale for a Euro, but many others not so convinient! Apa ni, masa krisis ekonomi dulu pun Proton untung! La masa Pak Lah kata ekonomi baguih Proton apa boleh rugi!
5. Failing to drive the formulation of a National Automotive Policy that would really benefit the national car industry, when Proton is the standard bearer of the national car industry! And even if they did give input, then it was pretty shoddy input considering how bad the NAP turned out to be!
6. And not to mention wierd distractions, like Dato' Azlan Hashim's first act of 'inspiration', unveiling that awful 'stretch' Waja... eeeuwww!

The situation at Proton these days are so deplorable that one wonders how the organisation even functions. It simply has no Management leadership to speak of. The competent people in its Management structure began their exodus following Tunku Mahaleel's dismissal, with the last competent and highly respected leader, then executive director of engineering and manufacturing, Dato Kisai Rahmat, resigning (many say in disgust) in July 2006.

The truth is that Proton has been suffering from a lack of and indeed deteriorating Management competence in the post-Mahaleel era, made worse by a Chairman who continues to undermine the efforts of senior execs. Everyone knows this. Even Khazanah VPs know this (though many won't openly admit it). This despite the fact that many of Khazanah's current VPs don't have real operational experience of managing a company, as the KPI's they worship are evidence of something undeniably wrong.

I said management incompetence began in the post-Mahaleel era. What, was Mahaleel so great?

No. Mahaleel isn't what I'd call "great". He isn't a Ghosn, an Iacocca or a Toyoda, but at least during his time Proton made money! Proton actually produced new models then and even had a 5-year vehicle program! In fact, the only new model unveiled by the current management, Satria Neo, was part of Mahaleel's program. If Mahaleel's plan had continued, we'd have a Proton MPV now!

If Mahaleel and his team were able to add better value as a manager than the current Proton 'Management', certainly the 'local players' that Thomas and Surin referred to would be able to, them being DRB-HICOM, Naza, Mofaz and Sime Darby.

I'd put DRB-HICOM as a firm favourite though. Not because I'm getting anything from it besides a huge ego boost from showing I can analyse better than the Edge, but because:

1. Tan Sri Syed Mokhtar Al-Bukhary who controls DRB-HICOM has had a successful track record in turning around former government/GLC lagards. The best example is the Port of Tanjung Pelepas (PTP), which he took over and transformed into 2006's Lloyd's List Maritime Asia Container Terminal Of The Year. The man just knows how to build good management teams!
2. DRB-HICOM is strongly intergrated with Proton's Manufacturing, Marketing and Finance base, what with it owning many of Proton's vendors (some needing improvements themselves, but probably easier to fix with Proton becoming a principle entity within DRB-HICOM) as well as controlling EON Capital. So, in Khazanah speak, the acqusition of Proton by DRB-HICOM has many 'synergies'!
3. I kinda like TS Syed Mokhtar's charitable works... makes me feel his undertaking of Proton would be as it was always intended, as a grand effort to build Malaysia as a nation, rather than just building another business.

The other firms are good contenders, but each have flaws. I list them here in order of priority to me if DRB-HICOM isn't meant to get Proton, with their flaws:

2nd Choice: Sime-Darby. It has some similar, but not as strong synergy elements DRB-HICOM has, but it has a major flaw... its engaged in another 'synergy' at the moment, so may be a little distracted!

3rd Choice: Mofaz. Ala, they're a little small la bub.

Last Choice: Naza. Wow, I put Naza last (even after Mofaz!), when the Edge puts Naza head-to-head with DRB-HICOM. Well, Naza may be favoured by the 'I have no links to Naza' minister Dato' Rafidah Aziz, but there is good reason why Naza should not get Proton, or at least be considered as the last choice. Justice.

Naza is a company constructed on massive AP over-allocation's (with SM Nasimuddin being the original AP King), over-allocation of taxi licenses and some suspect the 'forgiven' under-declaration of taxes on their imported cars. It would hence be unjust for Naza to be 'rewarded' with control of Proton despite their dastardly, some would say criminal, past. Besides, if the Sutera is any indication, Naza probably doesn't really have a clue how to do more than re-badge anyway!

I hope the above Tangent addresses this idiotic commentary from the Edge on how local players can't add value to Proton. I hope its evident that where value is concerned, our local players have management competence to contribute to Proton to save it from its current state whilst avoiding it from being a complete sell-out to foreigners. In fact, better we have these local players involved when dealing with potential foreign partners, at least to save the country from more embarassment...

Actually, I should have expected the Edge's incapacity to analyse the problems at Proton to continue as the Edge has always had a mantra of,"Proton needs foreign assistance", from at least 2004 when I started to read the weekly rag.

We have of course the ever famous Gunasegaram, who after being told by Mahaleel during an interview in 2004 that Proton only needs a foreign partner that can add value(!), seems to forget this altogether, then publishes an 'editorial comment' on the interview that Proton pretty much needs any Tom, Dick and Harry foreign partner it can get. Strange commentary coming from a business rag's Chief Editor.

And then there is the ever restless Ms Leela Barrock, who after failing to convince many of her view, that Malaysia 'Tak Boleh' w.r.t. making cars (implied in her article on the 27 Dec 2004 Edge Weekly), she took a 'gloves-off' approach, volunteering herself as representing Malaysians who want Proton to begone so she can buy cheaper foreign cars! Critical business analysis it appears is not a prerequisite at the Edge when it comes to Proton bashing!

May Allah save us from such high quality analysis as the Edge's efforts on Proton, for the sake of our nation's and our own socio-economic health...