Wednesday, July 23, 2008

Proton,M.V Augusta And Mahathir Re-Visited.


Hantu Laut

The recent sale of M.V.Augusta to Harley-Davidson should raise controversy over the sale of Proton's majority stake in the company.Proton's equity was what we in business circle called sold for a song.Sold for a pittance of 1 Euro.Although the buyer took over the liabilities, the sale is still questionable.

The excuse was that losses at Augusta would drag Proton down faster into insolvency. Little attention was given to the net tangible assets and goodwill on its advanced technology in design and manufacture of high-end motorbikes.Goodwill or intangibles can cost a lot of money to the right buyer.

The sale was made about a year ago.Did Proton approach Harley or any other bikes manufacturer at that time? Within a year the buyer that bought Proton's share has made money out of it.It appears that Proton and our government now look like blundering fools.

Like former Prime Minister Tun Mahathir Mohammed I have serious doubt on the genuineness of those who decided to dispose of the share in such a manner.I can only think of two possibilities, one to discredit the former Prime Minister and the other, something more sinister.

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High performance Augusta bikes.

It would be interesting to find out the true identity of the buyer of the 1 Euro share purchase, whether a nominee company was used and whether the purchaser has the financial capacity to undertake the takeover of majority stake in M.V.Augusta.Lastly, if the purchase was genuine, on a willing seller and willing buyer basis, were there incentives paid to the decision makers in Proton to influence their decisions to sell the share?

Although I do not agree with some of Mahathir's recent actions and attacks on the current government, I have great admiration for some of the things he did for this nation during his tenure as PM.At least there were political stability and the economy was doing well.Needless to say there were no hound dogs barking at the government, because there were no major issues except his autocratic ways.

There are two sides to the controversy regarding the viability of Proton.Some were in total disagreement with Mahathir and think he shouldn't have embarked on the costly project while some believe it a launching pad for other ancillary industries to grow and it's worth the risk if Malaysia were to enter the status of industralised countries.

The problem was not with Mahathir, the real problem lies with those given the task to develop the company and those in decision making, not many took pride in their job and move with the time. There was no infusion of new and better technology as was done by other carmakers.After over twenty years Proton has still not been able to proudly manufacture its own engines and gearboxes.

When I first started blogging in June 2007 I wrote an article on the crisis at Proton.I have very low readership at that time and not many have read the article.

I have re-posted the article below.

Sunday, June 3, 2007

PROTON: ONE MAN'S MEAT ANOTHER MAN'S POISON

Hantu Laut

Malaysian Prime Minister Abdullah Ahmad Badawi recently directed Proton to start turning around its financial performance after having incurred losses of RM619 million. Would that be enough for the management in Proton to shape up? Can it survive without massive capital injection from the government or fresh equity participation from established foreign carmaker?

Proton, the brainchild of former Prime Minister Mahathir Mohammed was launched in July 1985.It is now well over twenty years and it still has not been able to stand on its own. The problems are worsening due to stiff competition from other carmakers entering the market with cheaper and better quality models.

Most of Proton's troubles were of its own making. Unimaginative and apathetic management are the main cause of its troubles. New models put on the market were unattractive and of poor quality. Some models are just bad copies of older European models.Two new models put on the market recently was a marketing disaster , the Savvy which looked like an updated version of the Fiat 500 and the Gen 2, looking more like a squeezed down version of the old Alfa Romeo Alfasud.

The Wira, first introduced in 1993, the best selling model in the Proton stable, was an old Mitsubishi model and is still fitted with thirty-year old technology engine. This gas guzzling little monster consumed more fuel than the latest medium size Mercedes Benz.

To produce new models means costly retooling and Proton's many new models failed to excite car buyers. Negotiations with foreign carmaker, Volkswagen, to take up equity in the company collapsed due to the government demand for control of the company and control of the future direction of Proton.No one in their right mind, after having bought controlling interest in a company, would accede to such terms.

Was Proton not a viable project in the first place? Was Mahathir wrong in his vision of the industrialisation of Malaysia? Was it fair for the present administration to blame him for the troubles at Proton? Or was it just another exercise by the current administration to dismantle another one of his legacy?

Let us go to Japan and see how the car industries started, how it has produced many famous brands and how it gave birth to the biggest car manufacturer in the world.

Car manufacturers in Japan started maufacturing passenger cars in the 1920s/30s. The oldest manufacturers are Mitsubishi, Nissan and Isuzu.In their formative years, most of them, have collobrated with British auto manufacturers which had, at that time, one of the best mass manufacturing technology.In 1922, Isuzu, teamed up with Wolseley Motor Company of UK and produced the Wolseley A9 locally. Nissan chose Austin of UK as its partner to gain access to automobile and engine design and initially assembled the Austin 7 model locally for sale in Japan. Mitsubishi, another big zaibatsu has courted alliances with many foreign partners.A significant stake in the auto division was sold to Chrysler in 1971.The latecomer to the industry was Toyota which only put its first passenger car on the market in 1936.It is now the biggest car manufacturer in the world in term of revenue.Together with its subsidiary, Daihatsu, it plans to produce 9.4 million units in 2007.

Almost all of the Japanese carmakers have produced special brand in the US for the US market. Toyota has Lexus, Honda called theirs Acura and Nissan called their's Infinite. In 2003, Toyota, launched another brand in the US which they called Scion, to try capture the generation Y market.The US is the biggest markets for automobiles which the Japanese have succesfully penetrated and make their brands household names.

The other commendable country is South Korea which is even more impressive.Its car industry only started in 1955, initially as assemblers.Today, it is the fifth largest manufacturer in the world in term of volume.

Toyota has overtaken GM as the world biggest supplier of automobiles..This can only come about due to intensive product research, forward looking development activities and good corporate culture. Most Japanese carmakers have had their ups and downs but somehow managed to pull through and survive.Many British carmakers, some of which were pioneers of the industry, have fallen on the wayside and the few that are still around have been taken over by foreign companies. Quality and reliability still plagued most British made cars. The Range Rover, a high end luxury model, was voted one of the ten worst luxury cars in the US in 2006.

The 2nd national car manufacturer, Perodua didn't have the same problem that Proton has.Perodua is basically a Japanese company and managed on the same corporate culture. Daihatsu and Mitsui together control more than 51% equity in the manufacturing arm, Perodua Auto Corporation Sdn.Bhd and its subsidiaries. Although much smaller than Proton, it has delivered some good models. The Myvi, a model launched in May 2006 was a hot seller and still is. Perodua cars are selling well and are eroding Proton's share of the market. It recently launched another new model called the Viva.

If Perodua can survive and continue to gain bigger share of the market why can't Proton?What caused Proton to slide downhill so fast? Who is to blame, Mahathir or the present administration?

To say Proton is not viable is a myopic view of those who are more concerned with placing blames rather than doing something constructive to save the ailing company.It's the easy way out.

Chrysler, a company near bankruptcy once, was a good example of the strong and unwavering conviction of one man that believed the company should be saved and saved hundreds of thousand of jobs. While the majority have condemned and destined the company to the graveyard, one man stood alone, convinced the United States Congress to give him loan guarantees to enable him to save the company. With objections, protests, actions to undermine his proposal coming from almost every sector of the business community, and ridiculed by the press, it wasn't an easy task for Lee Iacocca to convince Congress to accept his proposal which, fortunately for Chrysler, Congress finally did.

With new financing available he managed to turn the company around and paid up all loans seven years ahead of time. I would suggest top executives and directors of Proton to read his book - IACOCCA AN AUTOBIOGRAPHY.

Is there someone in Proton who has the conviction and courage to do what Iacocca did? The weakness in the current administration and management of Proton are reflected in their action when they decided to sell off the investment in Mv Agusta for a song.This unconscionable decision cost Proton a loss of almost RM500 million.Proton's business advisor, former Prime Minister Tun Mahathir Mohammad said he has no prior knowledge and weren't consulted.He should have known better.They knew he would be an obstacle.Why appoint someone as your business advisor if you don't need inputs from him?

The buyer must have great confidence in MvAgusta to dare buy the share written off by Proton. The irony is, MvAgusta is still around, it hasn't been foreclosed or wound up as predicted by the Malay soothsayers in Proton and the government. They are still producing new high end motorbikes.

Those in Proton and government must put on their thinking caps to find the best solution to save the company from extinction.After so much time,money and effort spent to nuture Proton to what it is today, its demise, should not be an option.

3 comments:

kittykat46 said...

I beg to differ on Mahathir's tenure. Malaysia APPEARED to have political stability and be doing well.

The problems facing Malaysia today are PARTLY payback-time for the way Malaysia was governed during the Mahathir era.

There were no hound dogs barking at the government, because the major ones were under ISA detention.

Now we can see that Mahathir's control mania was much more insidous and dangerous than mere autocratic ways. To get his way, he had subverted the judiciary, the police, the Civil service to lie and fabricate "facts" if necessary.
Integrity and character takes a long time to build up, but it can be destroyed very quickly.

I'm afraid his mis-legacy is going to last for generations.

Hantu Laut said...

kittykat46,
For country like Malaysia it is difficult for Western-styled democracy to work,so we have to take middle of the road approach to ensure peace would prevail in the country.

The American who had been critical of our ISA now copied it to throw their captives in prison without trail in Guantanamo.Now they have stopped being critical of the ISA.

I do not condone using the ISA against political opponents but if the security of the nation or racial harmony at stake, I wouldn't be against it.

Mahathir might have had his bad sides but I think he had also made tremendous contributions to the development and progress of the nation. Althought some of them think he is against the West, many world leaders including Western leaders had given him credit for his achievement.

You may not like what I have to say but what has Anwar done for the nation other than trying to topple one leader after another to be NO.1 in the country.

We all have our own choice as to who should lead this country,there is nothing wrong with that, but for me Anwar is not my choice nor is Najib, between the two I would rather keep the flip-flop Abdullah until a better one comes along.

A.Horribilis said...

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