THE appointment of former prime minister Tun Dr Mahathir Mohamad as chairman of Proton Holdings Bhd drew divergent opinions from analysts covering the carmaker’s parent, DRB-Hicom Bhd, and the public, who yearn for better choices and lower car prices.

Analysts covering DRB-Hicom deemed it a positive for the conglomerate, controlled by tycoon Tan Sri Syed Mokhtar Albukhary. On the other side of the coin, some people have expressed worries about continued or more protection for Proton with the highly influential former premier taking over as chairman, feedback on a popular automotive blog revealed.

A long-time adviser to Proton before his latest appointment, Mahathir had, on many occasions, sung a different tune from the government on allowing more competition in the local automotive market, which would put the national carmaker at a disadvantage. The former premier firmly believes it is necessary to ensure Proton will not lose market share and money, which is critical to fund research and development into new models and technologies.

It is unfortunate that although Proton is now owned by a private sector conglomerate, the perception that it needs protection still persists. The carmaker continues to lose market share while profit margins are still shrinking — it gets less than RM500 per Saga SV sold, according to management. Its market share is also getting less, sliding to 19.6% in the first four months of the year, from 21.2% in 2013 and 22.5% in 2012.

With losses mounting — the carmaker lost RM821.4 million in financial year 2013 ended March 31, from RM606.3 million in FY2012 —  according to information obtained from the Companies Commission of Malaysia, it seems that Proton lacks the financial resources to refresh its line-up of ageing models to stay relevant.

Unless DRB-Hicom pumps in more capital or the banks make fresh loans, Proton has little choice but to seek more government grants and perhaps a certain level of protection in the marketplace against its rivals in the lower-price segment.

Proton has been pursuing certain concessions from the government and the appointment of Mahathir as its powerful chairman could further complicate things, industry sources say.

Just two months ago, Minister of International Trade and Industry (Miti) Datuk Seri Mustapa Mohamed confirmed that Proton had requested a grant, but said it was not an unusual practice among local industry players. While he did not disclose the amount, it reportedly was as much as RM3 billion, although this was denied by Proton.

Mustapa, however, said any request for funding was subject to the availability of funds and a thorough cost-benefit analysis. “Depending on the government’s financial situation, any company can seek tax incentives, research and development grants and training grants,” he said, adding that it would also depend on merit and whether it fits with the ministry’s strategic direction.

“No doubt Proton will have more clout with Dr M as chairman, and certainly the government will feel more pressured. But the fact is that the government has limited financial resources. At the same time, everyone is watching the National Automotive Policy (NAP) 2014, which is supposed to ensure fair play for any EEV (energy-efficient vehicle) manufacturer that fits the bill,” an industry player who is familiar with Proton says.

Under NAP 2014, the government has promised to give extensive tax and non-tax benefits to EEV manufacturers as well as those that step up their local value-add programmes. The terms are on a direct negotiation basis, taking into account the size of operations and investments and value-add to the local industry, among other things.

In fact, Miti had in April given its first EEV manufacturing licence to a partnership between Go Automobile Manufacturing (GAM) and China’s Great Wall Motors, to produce EEVs for sale to the local market as well as export. Armed with the incentives, GAM-Great Wall is expected to price its vehicles attractively to penetrate the local market.

This could be a concern for Proton, which already lags far behind Perodua’s 30% market share. Armed with the latest fuel-saving engine and powertrain technology from its principal, Daihatsu Motor, Perodua is also applying for incentives under the EEV initiative, which could give it a leg-up in pricing its models.  

Meanwhile, it is not clear if Proton has an EEV model in the pipeline that would qualify for the new incentives. According to industry sources, its upcoming P2-30A Global Small Car was supposed to be a test case for its EEV offering to seek more government incentives. However, that would require a different type of engine to power it as Proton’s ageing Campro may not qualify, it is learnt.  

Any form of protection or favour for Proton, at the cost of wider choices and lower car prices for the public, will continue to spur heated debate, particularly as the company has been under private ownership for the past two years and is no longer a unit of Khazanah Nasional Bhd.

As it is, the government has received a lot of flak for forcing local taxi operators to change to the Proton Exora from November this year if they want to renew their permits. The move will affect 42,642 budget and executive taxi drivers across Peninsular Malaysia, who could otherwise just opt for the entry-level Saga for about half the cost they will have to pay for the Exora, an MPV.

Any move that curtails choices and value for consumers will certainly not go down well with the public.

This article first appeared in The Edge Malaysia Weekly, on May 26 - June 1, 2014.