Are Proton and an automobile-dependence culture sustainable?

Speech (2)
- on the 2005 Budget
by Lim Kit Siang

(Dewan Rakyat, Monday): One of the most glaring omissions and a major disappointment of Budget 2005 is that the Prime Minister has not clarified the government’s position on Proton (Perusahaan Otomobil Nasional).  

The Government has yet to pronounce a coherent policy since the Prime Minister took over the reign from former PM and the architect of Proton, Tun Dr. Mahathir Mohamad, almost a year ago. 

It is a reflection of Abdullah’s leadership and authority that he has not come out with a clear position, as  the market and the public have been given conflicting signals! 

Several  issues pertaining to Proton need immediate attention:  

  1. Who is in charge of the policy  and decision-making on Proton? Abdullah or Mahathir?
  2. Is there a time-table or a dateline set for Proton to seek a foreign partner? Is Proton taking its sweet time to look for a foreign partner “at our own pace”, as suggested by Dr. Mahathir?
  3. Is Proton prepared for ASEAN Free Trade Area (AFTA) in 2005, when duties are to be reduced to 20%?
  4. Is Proton sustainable after 2008, when the 5% maximum tariff mandated by AFTA takes effect in Malaysia?
  5. Where is the long-rumoured and awaited National Car Policy?     

The question of Proton is a test of whether the Abdullah administration is competent in economic management. Failure to address the Proton question would have far-reaching ramifications for the Malaysian economy. For example, Malaysia’s compliance with AFTA would be used as a yardstick for future FTA negotiations with other countries, such as United States of America.     

Policy Failure  

Proton has been sheltered from competition through tariff protection since the first Proton car rolled off the assembly line. Under the nationalist economic policy formulated by the former Prime Minister, Malaysia would enter the industrialized world through an economy driven by heavy industries, particularly the automobile sector.

He was inspired by the Japanese/Korean economic models whereby car industries became the engine of growth while the entire nation subsidized the growth by paying high prices for cars in the initial stage. The hope was that Malaysia would eventually build a viable automobile sector that export cars to the world market like Japan and Korea. Malaysians have since been paying extremely high prices for cars (in the form of excise duties for Proton and tariffs for foreign-made cars) in order to support our nascent automobile industry. The “initial” stage has been a good twenty years. Proton is now a big baby that still cannot stand on its own. It may never be able to do so. 

However, the strategy failed. Its failure is inevitable. As a latecomer, the world automobile market has already been too crowded with producers and cars by the time Malaysia entered the fray. Proton has no choice but to sell  it to Malaysians. Export only account for less than 5% of its output. This defeats the initial purpose of pouring the national resources into the car industry.  

Further, it is not viable for a small country like Malaysia to sustain a car industry. A commentator rightly commented that “No country without a population and a GDP of at least US $ 500 billion has been able to sustain an independent, mass-market car manufacturer.” (Malaysia has a population of 25 million and its 2003 GDP was less than US $ 100 billion) (Far Eastern Economic Review 15/7/2004)  

Worst still, until recently, Proton has no technical know-how. The so-called “technological transfer” did not take place during its 20-year partnership with Mitsubishi. It came only after Proton took over British company Lotus.  

Furthermore, Dr. Mahathir’s nationalist thinking behind the inception of Proton proved to be fatal when it was outsmarted by the alternative policy path pursued by Thailand. Thailand has no national carmaker and no need for measures to restrict foreign vehicle operations within the country. It has now claimed the title of the ‘Detroit of East’, and benefiting from its position as the vehicle assembly and export hub of Southeast Asia. All members of the ASEAN free trade area are under pressure to reduce automobile and parts tariffs to five percent by 2003 under the regional trade pact. Thailand will be the main beneficiary of the tariff cut. And, here lies the policy failure of Dr. Mahathir with regard to Proton and the challenge for the Abdullah administration to overcome the legacy of Mahathir.   

Conflicting Signs 

The hopes on Abdullah to resolve the Proton question pragmatically have since been dashed by several conflicting decisions.  

In January, the Government attempted to prepare for AFTA by cutting import duties on motor vehicles and parts with its right hand but slapped excise duties with its left hand. Proton was given a 50% excise-duty rebate. The exercise became a joke as car prices went up with the new tax structure.   

In April, International Trade and Industry Minister Rafidah Aziz told Proton to speed up its search for a foreign partner. Days later, Malaysians were shocked to know that the most ardent opponent of selling Proton stake to foreign company, Dr. Mahathir, was appointed the Advisor to Proton.  

Mahathir subsequently gave a long interview with The Edge defending his failed nationalist policy by making a clear pronouncement that he “would like to see Proton remain under the control of Malaysian investors.” Proton was spared from the pressure to look for a foreign partner for a good three-month period.  

In late July, Deputy Trade Minister Ahmad Husni Hanadziah told parliament that Proton must follow trends in the automotive industry for local car firms to merge with global giants. The PM later suggested that the government was open to the possibility of selling a major stake in Proton to foreign partner. However, a Business Times report quoted Rafidah Aziz as saying that the Government would not force Proton to take on a foreign partner.   

So, is Proton going to have a foreign partner or not? Is the foreign partner going to hold a controlling stake?

We have no choice but to wonder who is actually responsible for the Government position on Proton and what is actually the Government’s stance on the issue. Can Malaysia keep Proton as it is in the face of AFTA and other challenges?  

This led us to another question: where is the National Automobile Policy? According to Far Eastern Economic Review (15/7/2004) and the Star (18/8/2004), a National Automobile Policy has been presented to the PM and waiting for clearance. The Budget 2005 was the best occasion for the PM to announce such policy but he has failed to do so.   

Let us remind the Government that the global automobile industry is now undergoing an intense and rapid restructuring. There are some major mergers in the recent years resulting in bigger global car producer groups, such as DaimlerChrysler-Mitsubishi, Renault-Nissan, Toyota and etc. How will Proton fare when competing with a) car producers stationed in Thailand under the new AFTA regime; b) these huge global players in the extremely competitive car market worldwide? The Government owes the people  an answer!    

In addition, the National Automobile Policy should also define clearly what the Government meant by “national car”. We are curious to know why two MPVs (multipurpose vehicles), one from NAZA modelled on the Kia Carnival and one from Hyundai-Berjaya modelled on the Hyundai Atos, were classified as “national cars” and given duty exemptions more favourable than Proton’s despite the fact that these cars have less local content than Proton.    

National Transport Policy 

There is a social cost to the twenty years of “hard-selling” Proton to Malaysians. Malaysia has a total of 3.6 million registered vehicles in 1987. By the turn of the century, Malaysia has 5.3 million private cars, 4.1 million motorcycles and 1.1 million other vehicles including taxis, buses and commercial trucks, which worked out to a total of 10.5 million vehicles. The total of registered vehicles now stands at about 13 million. Every year, Malaysia sees about half-a-million new cars entering its already congested roads. It is extraordinary given that Malaysian population is only about 25 million people.  

The vehicle per 1000 people rate in the Klang Valley is only marginally less than that of United States of America, Australia, New Zealand and Canada. It has more vehicles per 1000 people than that of Western Europe. It should be reminded that Malaysia is a developing country. At the same time, the utilization of public transport has declined from 34 % in 1985 to 16 % currently, which was identified in the Budget 2005 (Para. 32).  

The escalation of private car ownership and the decline in the utilization of public transport coincided with the Proton venture. It is arguably a direct consequence of Government policy in promoting Proton and other national cars as the car company had to rely on local market after the failure of its export endeavours. In many ways, privately-owned vehicles are not a luxury good but a necessity in Malaysia.   

It is high time for Malaysians to look into whether we can sustain such a high automobile dependency.   

In this context, I would like to commend PM Abdullah Badawi for finally setting his sight on the transportation problems in the Klang Valley. Abdullah was right that traffic congestion in major cities have resulted in wastage of human resources and time, which led to a decline in productivity, as well as the quality of life. (See Budget 2005 Para. 31-35). However, we do not think that the measures proposed in the Budget are  sufficient to address the long neglected problem.  

I would like to remind Abdullah  that as Deputy Prime Minister, he announced in 2001 that the Government was developing a more comprehensive National Transport Policy to increase efficiency, reliability and quality of the transportation system in the country (Bernama 7/9/2001) . We have yet to see such policy.  

A comprehensive National Transport Policy would have to take into consideration land use, national car policy, urban development, etc. The Budgetary measures are flawed and not comprehensive because it only focuses on public transport in a particular area, i.e. the Klang Valley.  

Transportation in the Klang Valley and Other Urban Centres  

The Budget 2005 announced the roles of the Steering Committee on the Integration and Restructuring of the Public Transport System in the Klang Valley (Para 33), the increased responsibilities of Syarikat Prasaran Negara Bhd (SPNB) and the newly formed Rangkaian Pengangkutan Integrasi Deras (RAPID) KL (Para 34), as well as proposed  a Klang Valley Urban Transport Authority as the regulatory authority for public transport in the Klang Valley (Para 35).  

Let me remind the Government that the transport woes in KL and the Klang Valley do not arise from the lack of regulatory institutions. Quite to the contrary, too many agencies dealing with the transport sector without much coordination among themselves is the partial cause of the transport problems. 

The Economic Planning Unit (EPU) of the PM’s Department, Ministry of Works, Ministry of Transport, Ministry of Entrepreneur Development and Dewan Bandaraya Kuala Lumpur (DBKL) all have  a hand in the management of the  transportation sector. Are they going to relinquish some of their roles to the new agency to ensure efficiency and effectiveness? For instance, would the Ministry of Entrepreneur Development cease to function as the regulator of buses and taxis?  

Confining the Urban Transport Authority to deal only with public transport would never solve the transport woes in the Klang Valley which is essentially a failure of national transport planning. It has to be dealt with from a comprehensive national perspective in the context  of a National Transport Policy


* Lim Kit Siang, Parliamentary Opposition Leader, MP for Ipoh Timur & DAP Central Policy and Strategic Planning Commission Chairman