Thursday, January 11, 2007

The Proton Saga: An Ongoing Example Of Analysis Gone Bad - Part 2, The "Insider"

I was innocently sharing my last write-up on Proton on the promuda circle ( when I was challenged by a chap claiming to be an 'Insider' of the workings of Proton under Mahaleel through to today. I'm grateful of the challenge really as it allowed me to then clarify some typical armchair-critic analysis which have long bugged me.

I actually first clarified that I had never worked in Proton. In fact, I've never worked for a car company. Nevertheless, the irony is that I am at least as qualified as the majority of "experts" commenting on the car industry today, with the advantage that I've been working in an integrated industry (oil) for more than 9 years now, covering production, R&D and now economic optimisation and tactical planning.

So, when I comment, it may not be as an 'insider' or expert as some claim to be, but I'd like to think it is based on more than just "pure assumptions, both fact and fiction".

I'll present my response almost verbatim, so I hope you'll be able to read the questions in the original challenge clearly.

The Insider wondered w.r.t. my insinuation that VW was less interested in being partners with Proton after the 'mega-insider' Azlan Hashim sold MV Agusta for a dollar,"They (VW) are focussed in what they do, i.e. a car manufacturer, so why would want to go into the motorcycle business?"

Response: Mr Insider. As an 'insider', you should know that there is a lot of cross-polination between all vehicular industries. Yamaha for instance was and continues to be a partner to Toyota in many technical developments, including the Toyota's vaunted Twin-Cam technology. BMW also owns a Motorbike unit, with the unique 'duck' engine design. Saab's original parent make aircraft, and Renault used to make tanks!

Presence of a high-tech motorbike arm as part of an auto company's design pool adds to the overall breadth and depth of a company's design make-up. As such, MV Agusta is not just of value for its brands, but also for its own set of and capacity to further develop Intellectual Property (IP), including a very well reputed design studio, CRC.

How is this transferable to cars? Lets try just one example. Headlights. As an insider, you'd know the sort of IP that goes into headlight design. The fusion of beautiful aesthetics with safe, effective light distribution, power efficiency and all in a compact package? Well,headlights are just one of the 'simpler' items MV Agusta's design and tech could bring to a car company like Proton.

The full list is long...Similar to say how Yamaha pianos contributed to the Lexus' woodfinish... no item and contribution is too small to be discounted.

The real technology jewel for Proton I had always felt though was the potential of MV Agusta's engine tech - small engines with power outputs that could drive a small car... like the Savvy! I understand Lotus doesn't have this technology, hence I had always believed access to this tech could be achieved from MV Agusta. Again, the Toyota-Yamaha relationship comes to mind.

You would know of course that some Korean cars have their bodyworkdesigns done in Italy? Proton used to OWN its own Italian design house through MV Agusta(!), something the present Proton management didn't understand.

When the current Proton management demonstrated this lack of understanding by selling MV Agusta on the cheap (to a company that seems to have been able to continue to keep MV Agusta floating!), VW execs probably realised they were negotiating with incompetents...and pulled out...helped along the way by another offer on the table...

The Insider actually also said prior to that that,"VW's technological capabilities are way more advanced than many other OEM's."

Response: True. But no car company I know has dominance in auto technology. The field is just too diverse. So an assumption that Proton, humble little Proton, of course with Lotus in its stable, had nothing to offer VW is arrogant in the extreme. Of course, Proton had more to offer when it owned MV Agusta... Lets continue...

On my questioning why Wira production was not stopped, the Insider said,"Although I agree with you that they should have stopped the production of Wira, but this issue was there even before Mahaleelleft. So I don't think this point of yours of blaming the currentmanagement for this is valid."

Response: I disagree with you, as Mahaleel publicly announced that Wira's production was to cease when the Gen2 production was to normalise and ramp up beyond the initial roll-out, hence Mahaleel was always planning to kill the Wira, ergo, the current management are fully responsible for keeping the Wira alive past its life-cycle!

In addition, I find the idea of scapegoating Mahaleel repugnant and irrelevant. The guy is gone. Excusing any incompetency of the current management on him, rightly and wrongly, is hence morally repugnant when the current management could and should take responsibility in the now!

The Insider also said on the Wira,"...Perodua are successfully doing what you(and me!) say shouldn't be done (killing Wira). They are still producing Kancils and Kelisas, two cars in the same segment, yetmaking a hefty profit from it..."

Response: I disagree. I think Kancil is and has always been a cheapo car.Kelisa is actually quite a bit better than Kancil.

The difference is not too subtle, like say between an Iswara and Gen2. These two cars both are also in about the same class in size and have close weight to power ratios, but they're for different markets.

The Insider said,"Again, poor quality vendor issue originated even during Mahaleel's era. He was the head honcho for about 8 years if I'm not mistaken, and it was during this time that it all went wrong. The new management took over about a year or so ago."

Response: As I said, I find excuses like this morally repugnant and excuses that 'the new guys need more time' smacks of the Lah-ism desease of procrastination. This is not the way to run a business.

I make no excuses for Mahaleel, and agreed, he could have tackled thequality problems sooner. However, I find it interesting that the government, Khazanah and Proton's board agreed he had to go at about the same time he began to negotiate and action the ranking of vendors, with the intention of dismissing poor quality vendors (many probably linked to the establishment) and replacing them even with foreign parts providers if needed to drive the car quality issue forward.

So, on the on-going poor Proton quality due to poor vendor quality, who's really to blame? Proton's current management holds the bag, though I suspect with Khazanah and the government sharing responsibility also for continuing to hamstring Proton.

The Insider suprisingly raised the standard song and dance questions why MVAgusta was bought. It was bought at a premium, it was making loses, it continued to make loses, yadayadayada...

Response: Well I believe I gave some good reasons above, and it is a reality in business that you buy above market price for control of a company, even unprofitable ones, as those may well still hold assets.

On MV Agusta continuing to make losses, this is where I can give you a lesson in one aspect of an integrated business. In major integrated business, there is such a concept as having aloss-leader. A loss-leader is there not to make money, but actually delivers value to the entire enterprise as a whole whilst it is making a loss. MV Agusta would have fit this role in Proton, given time, similar to say how Bugatti does for VW, or Xerox PARC does for Xerox in the imaging industry.

Interestingly, Lotus and MV Agusta was about to implement a branding and distribution cross-sharing plan which would have brought them closer to the black before MV Agusta was sold (the BBC reported this when the MV Agusta sale was announced).

Maybe the current Proton management wasn't interested? Maybe they didn't get it? Or maybe they just needed a scapegoat for incompetencies to that date?

The Insider said,"I personally know of and experienced an instance whereabout half a Billion ringgit was literally wiped out, due tounprofessional decission making by the previous management."

Sorry mate, but we're professionals. Please substantiate this,otherwise, even if you are an insider, this is hearsay.

Besides, didn't the SC declare once that losses of such a sizewas 'acceptable'? LOL

But seriously, even if this was true, management, even good ones,make mistakes all the time. Good management though on the balance make more good/excellent major decisions more times than poor/bad ones, with business growth an indicator of competency. Mahaleel consistently delivered growth. The current management doesn't seem to know the concept... we're lucky Proton's still in the black!

The Insider then said,"As far as I am aware of, the current management are really struggling to 'stablise the ship' due to the really low cashreserve of Proton."

Response: Sorry, but this is bull. Proton Group recorded a CASH balance of~RM1.6BILLION in 31 March 2006's and ~RM2.4BILLION in the year before's yearly audited accounts. If it no longer has this money (and the drop between the 2 end of years followed departure of Mahaleel in July 2006), the current management certainly can't blame the previous guy!

How can an 'insider' not know what is public knowledge? Here is the link to explore this public record:

Proton also self financed the Tanjung Malim plant and the Shah Alam plant is fully paid-up and is a real-estate goldmine that has neverbeen re-valued since the 80's! If Proton was cash strapped, any bank would take the Shah Alam plant as security for a few hundred million revolving credit. It would appear you have been made wrongly aware.

The Insider also excused Proton's current poor performance by saying the scenario for Proton now is worse than in the 1999 crisis, when Proton was still able to make a profit.

Response: Hello, competent management is able to make money or make the most of even poor situations. We have car companies in Brazil, with double digit inflation for decades on end, making money for god sakes! If the current Proton management can't handle the current business environment, its not the fault of the environment, they just don't have the competency to handle it!

The Insider commented,"I don't know how much Proton was involved in the NAP,but I would think it would be quite a small input due to the lesserfavourability to Proton compared to the pre-NAP era."

Response: I don't really understand your comment. How can Malaysia's largest car producer not be engaged in developing the NAP? It doesn't make sense.

So, you say even after Mahaleel was dismissed, the new management, supposedly backed by Khazanah, was not 'favoured' to give input to the NAP, commissioned by the government that make up the board of Khazanah? No, this doesn't make sense.

As I said, Proton's management, if not engaged, then were weak by not forcing engagement, and if it was engaged, were idiots if the NAP as it stands was the result!

On my claim that the stretch Waja was a debacle falling squarely on the shoulders of Proton Chairman Dato' Azlan Hashim, the Insider said,"...if you are an insider, or even remotely connected to the automotive industry, you should know that to come up with a new car model (albeit by only modifying a previous model) takes quite a considerable amount of time. The conceptual design phase, by doing crash analysis, packaging, etc, then prototypetesting, mule cars and what have you, and then coming up with the final design and finding suppliers, creating tooling for themanfacturing process etc, there are many things that need to besorted out, and I'm not talking about days or weeks here. Were looking at a time frame of at least a year."

Response: As I admitted, I'm not an insider. Though I would like to correct you in that I recall the MIT Motor Vehicle Research Institute's study in the 80'son Japanese lean production actually figured that the Japanese could potentially build new designs through to production in 6 months...that was 2 decades ago, before multiple use of platforms became vogue and so refined.

Renault is planning to launch what, 20 models in 5years? Something like that.

I'm not an expert. However, I don't consider the stretch Waja a new car, or indeed even a challenge to design such as to take as long as you stipulate above. Most of the hard engineering was done with the original car. I'm not an insider here, but I would have thought all you needed to design a stretch of an existing car design was figure out how far you could stretch the car before the engineering failed - you know on the body, suspension stress, torque distribution along the axle, etc. I'm not an expert though ;-)...

The Insider then said,"Although I was never involved in the Waja stretch project, I would think that when Mahaleel left, the project was already on going, maybe nearing towards completion..."

Response: This scapegoating of Mahaleel (again) is tiring. As you say you weren't involved in the Waja stretch, so the question is open. However, Azlan took (misplaced) personal pride in unveiling it - if it was a bad choice to develop it, a competent manager would have killed it as the cost of marketing and plant re-config step etc could be saved.

And really, based on what I mentioned above about the stretch not being a new car, assuming you're an engineer (like I am - I don't make cars, but even designing Xylene splitters aren't trivial), you'd know that stretching the Waja doesn't take THAT much engineering work...

On the Insider's comment,"As an ex-insider to Proton, I would have to say that the best thing to happen to Proton was the departure of Mahaleel.Regarding the new management, it is never an overnight quick fix whenyou are already in deep shit."

Response: Again, I was never defending Mahaleel, but his performance vs the current management was just a useful counter-point.

I would have expected that the good Chairman Dato' Azlan Hashim knew how to be more competent when he chose Mahaleel to be dismissed, else, why dismiss him. Evidently, he is not, and in fact, is far worse!

I also disagree that Proton was all rot under Mahaleel, as ironically, it's the legacy he left behind that is keeping Proton afloat now! The Tanjung Malim plant, the stronger intergrated company from manufacturing to distribution to finance, the next generation cars (with Savvy being the current best-seller - timely for the times, but then as Mahaleel was an oil-man, he probably new about the coming oil crunch).

Towards the end, the Insider stated,"I would give them (Proton's current management) some time to try and use their best efforts to revive Proton. It's been about a year now, I'll probably wait another year before I start judging them"

Response: I refuse to give the current management another day, let alone another year! This statement of yours again smacks of Lah-ism! The current management is poor not just because it can't maintain Proton's profitability and growth as a business, but in fact because it has made matters worse!!!

How can you, a critic of Mahaleel,tolerate a management that is patently more incompetent than his! But then again I'm neither an expert nor an insider as you appear to be..

I would again like to thank the Insider and others who continue to miss-Analyse the Proton Saga for allowing me the opportunity to respond to their views... responding when I can as above is fun... and hopefully results in more materiel being put down for my book!

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