Cover Story: Steering Proton back to No 1

This article first appeared in The Edge Malaysia Weekly, on July 20, 2020 - July 26, 2020.

Li: For Proton, the more important [thing] is we must grow in Malaysia first. (Photo by Kenny Yap/The Edge)

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AS Proton Holdings Bhd turns 35 this year, with Dr Li Chunrong at the wheel, it has found itself on more solid footing. However, it needs to find a way to be sustainable in the cut-throat automobile manufacturing industry.

To do so, the national carmaker must move beyond the domestic market, given its size, and Li — an engineer by training from Huazhong University of Science and Technology — knows this. Proton has to be a player in the international market to future-proof itself, after struggling for years and costing the group and the Malaysian public billions of ringgit.

With the backing of its two shareholders — DRB-Hicom Bhd and Zhejiang Geely Holding Group Co Ltd — Proton has the resources to return to the international market when Li thinks the time is right.

But first, he would like to see Proton retake pole position as the biggest selling car brand here.

“For Proton, the more important [thing] is we must grow in Malaysia first. How to lead our business [to] become stable is very important. It is very easy to spend money, but very difficult to make money.

“For me, I want to be No 1 in Malaysia first, and then go outside to the Asean markets. But we don’t want to stop [there]. Now we are already in Brunei, not only the basic models, but also the X70,” Li tells The Edge in a recent interview.

Besides Asean, Proton is also eyeing Pakistan as a potential export market due to its size and the friendly ties between the two governments. In fact, Proton was supposed to start exporting the X70 to Pakistan, but the Covid-19 pandemic put the plan on the back-burner.

Proton has been staging a comeback since Geely acquired a 49.9% stake in June 2017. On Dec 12, 2018, it launched its first new model under the new management, the X70 SUV, which is based on Geely’s Boyue C-segment SUV.

Last year, Proton moved 100,821 units, a jump of 55.7% from 2018, driven by sales of the upgraded Saga, Persona and the X70, giving it a market share of 16.6%. That put it in second spot behind Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) 39.8% market share.

The jump in sales saw Proton leapfrogging Honda and Toyota from fourth position in 2018. With the non-national marques in its rear-view mirror, Proton is now setting its eyes on Perodua’s crown.

How did Li achieve this feat? It boils down to improvements in two aspects — technology and operational management, which resulted in the market once again believing in Proton’s products, from the A-segment Saga to the C-segment X70.

“If you look at the X70, you will find many technologies which you cannot find in our competitors’ models. For example, technologies in connectivity, the interior ...”

He says the interior of some rival brands are made with plastic, but not in the X70.

“So until today, only Proton can produce this kind of complete product at a reasonable price in Malaysia. Malaysian consumers are very smart — they know this is new technology, [but] at the same time, the price is very reasonable.”

Best practices at Geely and its subsidiaries were also adopted in Proton’s operational management, says Li. One example is the Volvo Global Customer Product Audit (GCPA) system to ensure improvement in the quality of its products.

Based on the audit, according to Li, Proton’s basic models had a demerit score of 6,388 points when he took over as CEO in October 2017. At the time, Perodua had a demerit score of around 4,500 points, while Geely scored 1,200 points on average across the group.

A higher demerit score on the GCPA means a product has more quality issues than one with a lower score. This means that in 2017, Geely’s product quality was better than Perodua’s, which in turn was ahead of Proton’s.

Today, Proton’s demerit score has improved, Li notes. For the Saga, it is now 1,100 points at the most, and sometimes, it even falls below 1,000.

“So we have improved a lot. I believe our basic products now, including the Saga, are much better in terms of quality compared with our peers,” he says.

These improvements have led to car buyers returning to Proton showrooms to check out its range of models, and not just the X70. While the X70 is leading in the SUV market segment, Li knows the bigger market — the A and B segments — is where the money is.

From selling around 2,500 units of the Saga per month before the change in management, Proton is now doing almost double that number. In June, it sold 4,447 units of the Saga, says Li, who also claims that the Persona has overtaken Toyota Vios and Honda City in the B-segment sedan market.

While Proton has made improvements in its products and after-sales service and recaptured lost market share in 2019, it still has some way to go to achieving its goal of becoming No 1 in Malaysia.

Up to May 2020, Proton had sold 27,455 units for a market share of 21.2%. Meanwhile, Perodua chalked up 52,920 units in the first five months of the year for a market share of 40.8% — almost twice that of Proton’s. This means the increase in market share was at the expense of non-national marques.

But Li has faith in his team and staff. He believes Proton will be the No 1 car brand in the country again by 2027, or even earlier. To make it to the top, it might have to sell 175,000 units a year.

So how does Proton intend to overtake Perodua?

Li believes that if Proton manages to continuously improve its products and after-sales service, the market will shift towards the brand. At the same time, developing new models that capture the imagination of the market will be crucial.

Proton will be launching its new mini SUV, based on the Geely Binyue B-segment SUV, later this year. The group also aims to develop its own model, taking into account its capabilities as well as market demand.

“We will focus on product development throughout the 10-year period (2017 to 2027). This is a difficult task because to develop a model, it takes around four years ... for example, if I develop a car, it will not be launched today.

“Can you see what is going to happen in four years? It is very difficult. Not only do I have to understand this market, but also other markets. What is changing in the automotive world?

“If we develop a model and we fail, we will lose RM1 billion. If we fail [with] two models, we lose RM2 billion. At the same time, we lose opportunities. So this is why R&D, and also how to lead this company to move forward, is critical. You cannot lose two models. If you lose, this company will go bankrupt,” he explains.

However, the collaboration between Geely, DRB-Hicom and other companies within the group will be able to help Proton in its endeavour, says Li. “There are things that you can do, and there are things that I can do. We are a team, we work together, and then we can create something that other people cannot do. For example, we launched four models in eight months.

“Can you believe this could happen in Malaysia? We worked for 14 hours every day ... that’s why we could launch four models in eight months,” says Li.

It is undeniable that the automotive industry is very competitive, especially in the present day, with automotive technology constantly evolving. Electric cars and autonomous vehicles are among the areas that have seen tremendous advances.

For a carmaker that has been struggling with quality and brand image issues, Proton has not been able to shift its focus towards developing new technology to keep up with global car makers.

That will be another challenge for Li, whose tenure at the national carmaker has just been extended, as he takes Proton into the future.

 

 

Better operational management and culture key to turnaround

Proton Holdings Bhd’s problems prior to the entry of Zhejiang Geely Holding Group Co Ltd in June 2017, with the purchase of a 49.9% stake, can be attributed to weak operational management.

When Dr Li Chunrong, who was hired by Geely to helm Proton, assumed his role as CEO in October 2017, the first thing he did was to set up a Cross Function Team (CFT) to identify the issues the group faced and make recommendations to the new management team.

“About 200 people were in the CFT to review the overall business of Proton and find out how to improve our performance, not only on the products but also after-sales service — how to improve sales and reduce costs, how to improve administration and so on,” says Li, who was executive vice-president of Dongfeng Honda Engine Co before joining Proton.

Following the recommendations made by the CFT, steps were taken to address the issues. Li told Proton’s vendors to reduce costs by 30% if they wished to continue to supply parts to the group. He also instructed its dealers to upgrade their showrooms to at least 3S and 4S standard.

This is where the story became interesting for Li at Proton.

Immediately, the vendors complained about how difficult it would be to reduce costs by 30% and still be in business. Rumours were swirling that Proton’s new management would source parts from China and leave local suppliers in the lurch.

But Li was adamant that Proton’s costs had to be reduced in order for the company to survive.

“When I came here, I asked our vendors to reduce costs by 30%. Then, of course, they complained. They asked me, how to reduce costs? I asked them back, in terms of operation management skill, who is better? You or Proton? They didn’t answer, because we [Proton’s management] were bad before.

“I told them that your skill and my skill is the same, do you agree? They agreed. If I can reduce costs, you must be able to reduce costs,” he says.

Li told the vendors Proton had also reduced its operational costs by 33%, and that if the group could do it, they should too.

The cost reduction was achieved through a slew of measures, including shutting down 12 warehouses across the country. It maintains just four warehouses now — in Kuching, Kota Kinabalu, Shah Alam and Tanjung Malim, the latter two being at the Proton Centre of Excellence and Proton City.

The national carmaker also closed down three regional parts centres (RPCs) and sold them for RM1 million each, says Li.

In addition, it reduced the number of its company cars. Proton had 1,700 such cars for its management, a number Li believes is too many for a company producing less than 100,000 cars a year.

“When I was working in a company that was twice as big in China, we only had four company cars. That means Proton has so many company cars; so from my understanding, we can sell these cars. In the first six months, we sold more than 500 units.

“This is one of the examples of how I reduce costs. If I can do it, definitely the vendors can do,” he stresses.

Meanwhile, as Proton was scheduled to launch the X70 in 2018, Li embarked on a campaign to get the dealers to upgrade their showrooms to at least sales, service and spare parts (3S) standard. This, too, was met with opposition.

Some dealers claimed that upgrading their showrooms would involve huge capital outlays. But Proton persisted. It offered assistance to the dealers depending on the grade of their showrooms, measured by location, square footage, showroom size, number of service bays and so on.

Besides operational issues, there were also rumours of a clash of cultures between the secondees from Geely and Proton’s local staff. Li says the two cultures did not clash; in fact, they shared similarities.

“CFT was tasked to develop a new culture, combining Geely’s, Proton’s and DRB-Hicom’s values. We came up with TARI. It stands for teamwork, achievement, respect and integrity. This is why I said that we have the same culture.

“We also focus on the business. There’s only one reason why we are here — to do business. Let Proton be successful. I don’t want Proton’s staff to be hooked on other things. Everyone here is making a living for themselves and for their family.

“Everyone here is a worker. You are a local worker, I am a foreign worker. You are not a shareholder. But we have an overlap in targets, which is to let Proton be successful. Otherwise, we cannot understand each other. There is a common interest to let Proton be successful.”

The company unveiled a new corporate image, not only through a new emblem, but also the design, layout and colour scheme of its showrooms. For Li, the upgrading of the showrooms was not only good in terms of brand image, but also service improvement.

“Previously, more than 70% of our dealers were only doing sales (1S). Because of 1S, the store was small. The dealer could not store many spare parts. So that’s why Proton had to have many RPC. But now, we have more 3S and 4S centres — 124 centres — so these RPCs are no longer necessary.

“This is a business strategy. Why do I set up more 3S/4S? We want to upgrade our customer experience because we have high confidence in the X70. So we should put it in a high-quality environment, so that our customers can have a good experience,” says Li.

 

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