Dr M in the hot seat as Proton chairman

Updated: Saturday May 24, 2014 MYT 7:38:49 AM

Dr M in the hot seat

BY EUGENE MAHALINGAM

IN what would seem like a serious attempt to help turn the company around, national carmaker Proton Holdings Bhd appointed Tun Dr Mahathir Mohamad as its chairman earlier this week.

Industry observers see the move as a last-ditched attempt by the former prime minister to protect his legacy and his tenure is off to a good start as Mahathir has announced that Proton is in talks with several Japanese motor companies on jointly collaborating in the future.

While Proton is exploring potential partnerships, the jury though is out on whether the appointment of Mahathir will be a good move for the company.

One industry official, who requested anonymity, says DRB-Hicom should not have appointed Mahathir as chairman for Proton. “I don’t think it’s a good move. Mahathir is still quite sharp but that does not necessarily make him a good businessman. Having passion and being able to run a business are two different things,” he says.

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Others though, think the appointment of Mahathir is what Proton needs. “In trying to get incentives and protection from the Government, Mahathir will have the clout more than anyone else in getting something for Proton,” they say, adding that his stature is important should Proton secure a partnership link with a Japanese company.

The clock is ticking on DRB-Hicom as it struggles to build Proton. Progress of Proton under its stewardship has been tough going and, as the industry inches closer towards liberalisation, Proton will need to get moving.

Industry officials acknowledge that Proton still needs help and that the ins and outs of the top executive running Proton in recent years didn’t help in terms of strategising for the future, especially when it comes with dealing with the pressures of liberalisation.

Proton had in April appointed DRB-Hicom group director for automotive and defence Datuk Abdul Harith as chief executive officer following the resignation of deputy chief executive officer Datuk Lukman Ibrahim.

“They are now struggling to understand the complexities of Proton – something that they did not have to deal with in the past,” according to a source.

The 88-year-old Mahathir has been Proton’s group advisor since late-2003, after he stepped down as Malaysia’s fourth prime minister. Proton is a wholly-owned subsidiary of DRB-Hicom, which the latter took private in 2012.

Mahathir replaces Tan Sri Khamil Mohd Jamil as chairman of Proton. The latter remains on the Proton board as a director.

PublicInvest Research, meanwhile, says in a client note that it believes Mahathir’s appointment should pave the way for him to take a more active role in transforming the national carmaker, which had been steadily losing market share to Perodua and non-national marques in recent years.

“We view Mahathir’s appointment as chairman of Proton as positive for DRB-Hicom, as we believe his clout within the Government and auto industry is beneficial for the automotive maker.

“In addition, Proton’s global small car, which is expected to be launched in the second half of this year, (delayed from April) will likely be a game-changer for Proton,” the brokerage says.

Proton has had a topsy-turvy time since its inception in 1985 and has been wrought with all kinds of issues – mostly surrounding the products’ quality and component reliability.

The initial liberalisation of the auto sector, especially when it comes to tariffs from cars manufactured in South-East Asia, has put pressure on its sales.

From having a commanding market share in the early years of its operations, Proton’s sales and ultimately its market share gradually shrank over the years.

Since the turn of this century, Proton has seen its share of total industry volume (TIV) shrink significantly, slipping to about 29% at the end of last year from 53% in 2001.

The need to help turn Proton around is also evidenced in the company’s sales performance. The company has been seeing its sales shrink year-on-year over the past two years.

Proton sold 158,657, 141,121 and 138,753 units in 2011, 2012 and 2013 respectively.

Noteworthy also is the fact that the local automotive industry, which has always seen national brands Perodua and Proton collectively commanding the lion’s share of the market in terms of sales, are instead now playing catch-up with their non-national counterparts.

According to official statistics, sales of non-national car companies surpassed national makes in the third quarter of last year.

With new model launches, aggressive sales promotions and campaigns being undertaken by non-national players to continuously woo buyers, it seems a shift in the balance in the Malaysian TIV is unlikely any time soon.

And with the announcement of the National Automotive Policy (NAP) 2014 in January, which had set out liberalisation policies that will promote competition further, local car companies are in for a tough fight to win back their lost market share.

The main objectives of the NAP 2014 is to turn Malaysia into a regional automotive hub for energy-efficient vehicles (EEVs) and promote a competitive and sustainable domestic automotive industry.

Last month, Malaysian-owned Go Automobile Manufacturing Sdn Bhd (GAM), in partnership with China’s Great Wall Motor Co Ltd (GWM), became the first company to be granted an EEV licence.

GAM has committed to investing RM2bil to manufacture Chinese EEVs in Malaysia at competitive prices – which is set to create competition within the entry level market, the segment that is primarily controlled by Perodua and Proton.

New automotive-related investments are expected to be announced in due course.

For Proton, it would seem that the need to have a strategic technical partner to improve its competitiveness is still key.

Industry observers are a bit more optimistic about Perodua’s outlook in light of the gradual liberalisation of the local automotive industry, mainly due to the company’s link with Japanese carmaker Daihatsu. It’s a big help to Perodua that its core research and development is already done by Daihatsu.

Proton, which is a full-fledged manufacturer, meanwhile, has to bear its research and development costs.

Perodua has put in place a five-year strategic roadmap to become more competitive, in light of the increasingly challenging automotive industry.

Also, compared with Proton, Perodua – which is the top-selling car company in the country – has a better sales track record, having sold 179,989, 189,137 and 196,071 units respectively in 2011, 2012 and 2013.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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