Thursday, June 07, 2007

When A Proton Loses Its Charge...

Let's have a conversation about something that I've been keeping silent about for a while now, the snow-balling disaster at Proton. Silence seemed a wiser course of action knowing that my last long discourse on this matter was when it seemed a local entity with a credible leadership was being considered to replace the disasterous Azlan Hashim regime at Proton.

It was hoping that the national committee on this matter, led by the DPM Dato' Najib Tun Razak no less, was on the right track towards appointing an entity to guide Proton to a steadier footing, as the better option seemed... better... whilst the lesser one's main problem was not incompetence, but rather its sleazier self-serving owners. However, since such matters were in the press, some strange things have occured...

Firstly, when Proton's performance continued to dive, quarter by quarter, through to the poor final full year result posted recently, Azlan Hashim's Proton management acknowledged shortcomings due to 'need for a partner' or 'tough market environment' or 'high cost of steel'. These of course were excuses and nothing more, as the Proton management failed to acknowledge that:
  1. In place of a proper new product driven marketing strategy, Proton's management had embarked on the classic marketing fool's option of cutting the price of its cars, with no understanding of the price elasticity, or lack thereof, for the higher volumes to cover the lower unit margins.
  2. Poor manufacturing strategy as Proton continued to make cars people didn't want, including the Wira, which was supposed to have ceased production long ago, resulting in an increasing inventory problem in Proton. These high and rising investories was what made increasing material cost so much more expensive to Proton.
  3. Both the poor manufacturing and marketing tactics were due to a lack of undestanding by Azlan's management of the fundamental change in the car market, not just in Malaysia, but globally. Trends like a shift to smaller cars to save fuel, as anticipated by the former oil-man that was previously running Proton leading to the Savvy being developed. Azlan Hashim's leadership was just directionless in this regard.

Then, the issue of the collapse of the 2nd hand car market came up, with first Proton, then automotive bodies, bandying out the unworkable idea of a minimum trade-in value for used cars to kick-start the market. In many discussions, it was said that the National Automotive Policy (NAP) was too successful in reducing car prices, leading to this problem. Very few commentators in the mainstream media hinted that the issue was due to the failure of the NAP! How? In order of events:

  1. When the NAP was launched with much fanfare, the first few days was embarassing for the 4th Floor, who claimed it as an achievement, and Ethos Consulting, which helped produce this shallowest of policies. This was because the NAP was expected to result in the market drastically adjusting car prices downwards. The problem was, it did not! The market players just did not see the NAP giving much incentive to reduce the price of cars!
  2. So, in panic, someone, the 4th floor? Ethos Consulting? Someone convinced the DPM to come out to publicly admonish the local car manufacturers for not dropping prices, then arm-twisted the GLC's to cut the price of Protons and Peroduas. So, the drop in car prices was not due to the NAP, but due to an artificial forcing of price cuts by the government.
  3. Whilst the arm-twisting, rather than the NAP, did get car prices to drop more significantly, it also resulted other effects. It spooked the banks. How could the banks set interest rates for car loans that would effectively reflect the risk of government price intervention in the car market? Raise the interest rates on car loans!
  4. In addition, the forcing down of new car prices spooked the second hand car market also into a price shift downwards, a little lower than a market reaction, again, due to the artificial forcing down of new car prices.
  5. Ah... but now comes the killer blow. The banks, seeing the second-hand car market declining in prospect even more than the new car market, made it more difficult to get and increased interest rates for car loans to buy second hand cars.
  6. The banks' reaction led to a further collapse of the second-hand car market to where it is today.

So, if you follow the chain events back to the root cause, the reason for the collapse in the second-hand car market is the artificial lower car pricing forced by the government onto the car producers like Proton and Perodua due to the panic felt by the government's young inexperienced Oxbridge advisors when their policy didn't have any significant impact to the local market, on which they had also mistakenly over-focussed the policy on!

Why have we not heard condemnation or any sackings of the authors of the NAP for partly destorying Malaysia's car market, and potentially Proton too!

In the meantime, Azlan Hashim had to try and sell a success story for Proton seeing as his contract was due for renewal. He widely publicised the story of Proton's entry into Indonesia, with Proton also securing a deal to supply Wira's to a major taxi fleet. Maybe some clarification here:

  1. Proton's entry to Indonesia had been planned for at least 5 years, but had been delayed for at least a year by Azlan's management.
  2. Selling Wiras to the taxi fleet was a mistake as it now risks branding Proton as a car producer of outmoded technology in a key market. It would have been better if they supplied at least Waja's, with its large boot and Lotus handling as key selling points.
  3. The selling of the Wiras had an ulterior motive, basically as a desparate measure to remove huge stocks of Wiras that had been over-produced beyond its earlier planned line discontinuation.
  4. Indonesia was only one of the key foreign markets Proton had planned to enter up to 2-3 years ago. What happened to the deal with Iran? Did Renault really take it from us first or did Azlan stop talking to the Iranians so that Proton can still be sold to American companies like GM?

A more recent tragic read I found in the mainstream press was, after the poor full year performance, Azlan Hashim had the temerity to suggest that he needed to select a new team to lead Proton, as Syed Azlan was probably unsuitable as a CEO and they needed a top class CFO! He seems to have forgotten that:

  1. Azlan Hashim was responsible for compelling Tunku Mahaleel, which like or not, was at least competent, from continuing to be Proton's CEO.
  2. Azlan Hashim was responsible for the resignation (some say in disgust) of the reputable CFO of Proton, Mr. Tan Seng Lee. One suspects this is due to Tan's protesting of book-keeping around MV Agusta's disposal, as soon after he left, MV Agusta was sold for 1 Euro, with no consultation with minority shareholders and justified by dubious accounting.
  3. Azlan Hashim was the one who chose Syed Zainal to be the next CEO, by-passing a senior Proton person with superior operational skills even as a choice, Dato' Kisai Rahmat.
  4. Azlan Hashim made it untenable for Kisai Rahmat to stay in Proton. This is as Kisai saw his efforts for many years in Proton being put to waste and squandered by Azlan.
  5. Azlan Hashim also has singularly failed to attract the appropriate leaders to serve in Proton under his leadership, despite being in sole control for some 2 years now.
  6. Finally, I'm not even sure if Azlan's contract as Chairman has been renewed - the old contract lapsed some months ago!

The litany of poor personnel decisions by Azlan Hashim in the past shows that he not only is not sufficiently competent to choose the next leaders for Proton, he doesn't deserve to even be retained in his own position in Proton. So is he being delusional or arrogant or just ignorant when he speaks of replacing key personnel at Proton?

And today, I picked up news that got me writting again, about how Khazanah, in a panic, is about to sell control of Proton's crown jewels, whatever remains of its intrinsic value, at a song to a company with VW and Sime Darby in the driving seat. Sime Darby? I thought Sime Darby management was too busy with Synergy Drive to bother with Proton!

What has happened to the plans on the DPM's table some months ago? Is Khazanah really that desparate that they will act despite the DPM's wishes?

As the PM will be busy getting married this weekend, and as I do not trust the PM's minders, I believe only the DPM can address the Proton issue now. I hope he's at least being given the right advice - that Proton needs an new local entity to assist it in any engagement with a foreign partner - Azlan has just made Proton too weak to do it on its own.

The entity I prefer to take up Proton's equity is one led by a leader with a proven turn-around and national service record. The entity also has strong synergies with Proton. The choice was obvious many months ago... and certainly not this VW/Sime Darby nonsense, or some crippled plodding American has-been company that also shares the news.

Dato' Najib... if you or your people deem my writing here worthy, please save Proton from the ill action of Azlan and Khazanah... the rakyat should get its investment's worth... pleas remember Proton is more than it appears to be...

5 comments:

Jeremy said...

A spectacularly bad article.

Handshake said...

South Korea has one of the most protected auto industry in the world. You'd be having a hard time finding a foreign make on South Korean roads. Only in last 1-2 years a few make has gained entry into Korean market.

A lot of countries protect their domestic industries. You cannot export rice to Japan without having to pay hefty tariff, and rice is very expensive in Japan, but do you hear Japanese complain about the price of their rice?

Similarly, USA placed (or have placed, or going to place) a high tariff on imported steel, in order to protect its own steel industry from onslaught from former Soviet bloc countries.

People who thrive on globalization are the middlemen, those who got nothing to sell and people don't want to sell them anything because their market are too small (SINGAPORE).

And you know what they say about middlemen everywhere? Kill them all.

Anti Juta Juta Deals said...

Agreed 100% on handshake's opinion. ..and you know what, Middleman who has connection with the politician is the worst kind.Instead of protecting us, they are the traitors (Just for the sake of MONEY MONEY !!...No principle)
Harapkan pagar, pagar makan padi!!!

To tell that they are stupid is not true as they travel extensively to all over the world.(parents ,checkout http://malasbelajar.com for smart study)

I'm sure they travel to Korea and see in their own eyes how the Korean's brand succeed. 15 years ago , who would buy their brands if not the Korean themselves. Why ?? You mean their goods are really good from beginning that Korean will only buy their products?
Until today , no other imported brand succeeded in Korean market.(Let alone Proton)

Damage is done and PROTON is dead and it looks like only Temasek can help us .

Temasek to the rescue !!!! (Wonder why???)

Radical Scope said...

ah, so the ship we called proton is sinking. kinda remind me of titanic.

first and foremost, if i remember my management and marketing classes correctly, price is the last weapon to get the edge against the competitors. you can only use it if all other measures are futile. what i've seen so far, whoever was the captain of the ship didn't even think about other options. they just cut the price. and then there's the story about a certain maha who made proton his personal asset. nope, not Tun. the other maha. i got the story because one of the lecturers of my department was the one assigned to help proton turn around (miserably).

another failure proton did was to take the protection given by the government for granted. they didn't try to improve the car's performance. the designs are crappy (think tiara and juara). the material used are crappy (other cars are built to last, proton's are built to become like "tin aluminium"). and still they are protected. that's why people would rather buy foreign cars, japanese or korean cars if they can't afford european and american ones.

these matters should have been addressed before. it may not be too late to address them now, but it'll take a looooooooong time for proton to polish its brand name again. not that the name was shiny before.

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