By P. Gunasegaram
Tiger travels to Thailand to find out why their auto industry is doing well while ours is headed down the road into oblivion. He finds that our problem is we continue to protect one sick old man and our entire automotive policy is centred around that. This has prevented any kind of enterprise springing up around automobiles.
This concept of a national car is an insidiously sick one, relying on patriotism to protect an inefficient industry behind high tariff walls and artificially inflating car prices to provide profits to what have become privately owned industries at the expense of the Malaysian public.
And now the architect of this sick policy former prime minister Dr Mahathir Mohamad has come up with yet another “reason” for sustaining the national auto industry – translate that to sustaining the sick old man of the industry, Proton, now owned by his crony Syed Mokhtar Albukhary via DRB-Hicom.
Mahathir argues that if the national auto industry goes, then the country will lose some RM12 billion in foreign exchange a year.
“Assuming an average price of RM40,000 per unit, the total sales value would be about RM12 billion (for 300,000 national cars). This additional amount will be an outflow if all cars are imported.
“Taking everything into consideration, Proton has contributed much towards the nation’s economy and its development,” he said.
On the face of it looks very compelling, but let’s examine it further. First, even if all protection were removed, it will still be possible for national auto makers to make sales as they adjust to the new competitive era. Let’s say they are able to sell at least 50% of the cars they used to sell – the outflow is halved to RM6 billion.
And then, all local cars have foreign content too; take that out and that will knock perhaps 25% off RM6 billion. If cars are imported, they could be perhaps, conservatively, 25% cheaper. Knock another 25% off. That means the RM6 billion is halved again.
And hey presto! The RM12 billion has suddenly shrunk to just RM3 billion.Remember too that this will be done over five years at least if we have the guts to come up with a good national automotive policy.
That will dismantle all protection over the period and stop all preferences to the national cars, and the rate at which the outflow will grow will be gradual – at around RM600 million a year for five years. That will be easily sustainable.
And there is some more. Once our auto industry is liberalised, and players are welcomed from all over the world, the game changes completely. We become manufacturers for established players, our parts manufacturers make to international standards and they export throughout the world. We become true exporters of automobiles and parts, not failed exporters like Proton.
The key to this is to throw this idea of a national car out of the window forever. If we have a national car, should we have a national TV, or fridge, or truck or motorbike or house or ship or anything else? It does not make sense – a car is a car, a product, nothing “national” about it.
Dr Mahathir Mohamad
Mahathir’s national car project was based on import substitution for initial success, forcing people to buy Protons because of huge tariffs on other cars more competitively produced elsewhere. It was supposed to become a world manufacturer like Hyundai of Korea but never did in 28 years of operation – it was an abject failure.
The problem is Proton has not been recognised publicly as an utter failure as a global car manufacturer but is continuing to receive intravenous transmissions to keep it alive through unreasonable tariff barriers and forcing Malaysians to continue to pay high prices for cars.
So what should be do to put the problem right? Simply remove any preferential duty for automobiles and encourage anyone from anywhere to set up automobile manufacturing. That would be seen as anti-nationalistic but a proper assessment will show it to be anything but that.
For this Tiger nationalism is about doing the best for all people in the country. Cheaper cars and a vibrant car industry which has export potential and which help increase incomes are far more nationalistic than protecting inefficient industries.
In fact protecting Proton to favour one single individual and preventing efficiency and scale in parts manufacturing is actually anti-national and does great damage to the pockets of all Malaysians and to the national economy.
If you think Tiger is talking through his hat, let me tell you he does not wear one. But an examination of the Thai auto industry shows clearly where they have succeeded where we have failed.
Just take a look at the charts. Thailand produces some 2.5 million vehicles. Malaysia produces around 500,000, just one fifth of Thailand. Thailand exports over 40%, we export next to nothing.
Export earnings from automobiles for Thailand amounted to some RM27 billion (over RM86 billion) in 2011! Ours are next to zero.
Thailand is the 10th largest automobile manufacturer in the world, we are twenty something.
What did Thailand do right and what did we do wrong? First, there was no such thing as a Thai car. So any major established player in the world could set up manufacturing operations there. Second, its policies are liberal and equal opportunity among investors meant that there was no discrimination and hence free competition.
That has made all the difference in the world, making Thailand a regional automotive centre and a world force. And it can make a difference to us to. No we don’t need to kill Proton. Just announce a policy of non-discrimination which will take effect over five years. Proton will then find a technology partner because it will have to in order to survive.
Right now, it can survive on protection that the government dishes out and that is wrong. Why is there a need to change when profit is guaranteed by government protection?
GRRRRR!
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