Malaysia Car Industry Essay, Research Paper

1.0 MALAYSIA CAR INDUSTRY

1.1 Background

Malaysia is one of the smaller Southeast Asian markets for motor vehicle production and sales and ranks behind South Korea, the People’s Republic of China, Taiwan, Thailand and Indonesia. Since 1985, when the first made-in-Malaysia car, Proton rolled off the production line, it have been spearheading Malaysia’s ambitious plan to become one of the world’s most advanced industrial societies by the year 2020. To date over one million Protons have been sold in 51 countries throughout the world. By contrast, Malaysia’s motor vehicle industry actually remains heavily protected with import duties ranging from 140 to 300 percent on cars, and very high local content requirements. Malaysia also maintains an import ban on motor vehicles from Israel and South Africa. These protectionism clause in large has made Proton to became the number one best selling passenger car in Malaysia. It has also maintained a huge market share of over 50% since 1987 from it infancy beginnings in 1985.

1.2 Market Review

Year 1998

Position Makes Sales Unit Share

1 Proton ( EON ) 67595 49.5%

2 Kancil 38921 28.5%

3 Proton ( USPD ) 19894 14.6%

4 Honda 4100 3.0%

5 Toyota 1930 1.4%

6 Nissan 1407 1.0%

7 Mercedes Benz 1160 0.9%

8 BMW 672 0.5%

9 Volvo 422 0.3%

10 Peugeot 350 0.3%

Total Passenger Car 136451 100%

1.3 The Proton Story

In 1983, the Malaysian government formed Proton (Perusahaan Otomobil Nasional) – a 70/30 joint venture between the Malaysian government and Mitsubishi. Assembly of its first national car, the Proton SAGA, began in 1985. The SAGA contained 70 percent local content in the beginning, with plans to increase this eventually to 90-95 percent. Currently the Proton is between 60 and 62 percent local content according to GSP criteria.

Product Launch

1985 Proton SAGA 1.3 and 1.5 litre

1992 Proton ISWARA 1.3 and 1.5 litre

1993 Proton WIRA 1.5 and 1.6 litre

1994 Proton SATRIA 1.3 and 1.6 litre

1995 Proton PERDANA 2.0 litre

Proton WIRA 1.3, 1.8 litre and

2.0 diesel ( new generation )

1996 Proton TIARA 1.1 litre

1997 Proton PUTRA 1.8 DOHC

1998 Proton SATRIA GTi 16V

Proton PERDANA V6

1.4 EON ( Proton Leading Car Distributor )

EON, a member of the DRB-Hicom Group, was established on 16 May 1984 as the sole distributor of

Proton cars. On 1 September 1985, it marketed the first Proton Saga, and thenceforth there was no looking back. As the leading distributor for Proton cars in Malaysia, it has also became one of the nation’s fastest emerging group. Sales volume increased rapidly – from 7,494 units in 1985 to 140,968 units in 1997, averaging an annual growth rate of 18.7 per cent. For the financial year ended 31st December 1998, the group recorded a turnover of RM 3.95 billion with a pretax profit of RM 101.6 million.

2.0 CHANGES IN THE CAR INDUSTRY

In Malaysia, for the last 10 years, the car industry was practically taken over by Proton brand. Of the vehicles sold annually, 70 percent are Proton sales. Some 25 other manufacturers compete for the remaining 30 percent. The previous best selling car like Nissan Sunny was totally wipe out almost overnight since Proton huge takeover in market sales more than 10 years ago. Over the next decade, the Malaysian Proton vehicle market is expected to increase close to 90 percent from 230,000 units at present to approximately 375,000 units in the year 2000.

3.0 HOW PROTON REMAIN NO.1

3.1 Marketing-Mix Strategies

The most basic marketing-mix tool as in Product, Proton offers unquestionably the best warranty package of any manufacturer. The most important part being the power train warranty, which guarantees the engine and transmission assemblies against failure for six years.

The next most aggressive marketing-mix tool in Proton sales is Promotion and Place. Proton through EON as distributor has been able to undertake to communicate effectively and promotes its product to the target market. It has set up communication and promotion programs extensively consisting of advertising, sales promotion, public relations, and direct and online marketing.

The very first promotion Proton used was to organized the car naming contest, and it was from here that a certain brand belonging patriotism towards Proton SAGA name was instill among Malaysian. The government itself also relentlessly pursue the promotion of Proton car on a nation wide scale with the Prime Minister launching almost every new model category in the Proton car lineage. This itself has been widely covered in all major newspaper for the benefit of market brand awareness.

As in recently the Prime Minister as a prime mover in promoting Proton cars have launched numerous world events namely, the World Cup Golf ‘99, and Le Tour De Langkawi, awarding a Proton car to its winner. The recent achievement of Malaysian athletes who had set and broken records in Kuala Lumpur 98XVI Commonwealth Games was also not forgotten, as the athletes were each awarded a Proton PERDANA.

Besides this Proton through its marketing arm EON, have also been sponsoring world events to promote the car namely, FIFA/Coca Cola IXth World Youth Club, 34th International Youth Skill Olympics, Motor Rallying Activities and the Malaysia Thomas Cup team to restore the badminton glory. These intensive promotions especially at world functions have nevertheless promoted Proton cars to a vast majority of people in Malaysia as well as overseas.

Proton also tried to demonstrates its markets strength by establishing a national record of 2713 Proton cars in perfect convoy at the Penang Bridge Merdeka Proton Drive for the Guinness Book of World Records. This will surely bring about brand belonging patriotism. Further to that, Proton carried on durability advertising by creating a successful parachute jump at the North Pole using a Proton WIRA 1.5.

Recently in a promotional blitz to stimulate demand for the automotive industry and to assist the country’s economic recovery effort, national car distributor EON promoted the weekend mega EON Auto Carnival – The Main Event. Hundreds of new cars were sold at this carnival. Aside from this, Proton also supply refurbished and used cars to be sold at EON Motoria Autofair as to target the next lower income group.

The next aggressive marketing-mix tool by Proton is Pricing and its convenience. Here Proton decides on good for value price, discounts and good credit term.

Besides the aggressive advertising, promotional and sales strategies being adopted by EON, the government move to relax the end-financing ruling for vehicles below RM40,000 to 85 per cent and the extension of the terms of repayment to seven years have also been a contributory factor to the increase in sales. EON’s paradigm shift in marketing is aimed at making car purchases more affordable. This will sure be welcomed by many Malaysians who may have encountered difficulties in getting finance in the past times.

In the recent economic downturn, EON have also managed to re-categorize its pricing. Customers have shown particular interest in the no-frills Proton Iswara 1.3S Aeroback that was being promoted at an affordable RM29,683. In a short period, 3,160 units for all variants of this model were sold.

The drive to sell remains a high priority at all levels in EON despite a dampened market. The company is also offering a RM4,000 discount on the new Proton Perdana 2.0 SEi Auto (corporate edition) to attract the executive and fleet market. At one time, a buyer-get-buyer bonus incentive programme of a service redemption voucher valued at RM300 is also offered to owners of Perdanas who introduce new customers to the pleasures of a Perdana ownership.

On the outlook, EON is confident of the sales for Proton vehicles increasing in tandem with the country’s economic recovery.

In an attempt to control the price further, EON and the government have also:

1. Raise exemption of excise duty on Proton cars from 50 per cent to 70 per cent for a limited period. (This meant a loss in Government revenue of RM 126 million in 1998).

2. Extend the 50 per cent exemption on excise duty for Proton’s Tiara for an additional 6 months. (Loss in Government revenue for 1998 at RM 35 million).

3. Eliminate optional accessories to lower the prices of Proton cars by nearly 10-12 per cent from the current price of the car.

4. Suspend temporarily the 13 per cent import duty on Proton’s components as an inducement to export to new markets, which are consistent with the WTO rules. (This waiver cost the Government RM 58.3 million in revenue in 1998).

5. Proton also trives on the preferential government treatment, paying only 13% duty in imported parts while it’s rivals forked out 42%.

Ideally, the strategic vision for PROTON is to be a global automotive manufacturer, able to compete with emerging car producers in all markets. A pre-requisite towards realizing this vision is through reaching the level of economy of scale production thus enabling production at low cost levels.

As part of its long term capacity expansion plan, the building of its new plant in PROTON City, Tanjung Malim, 90 kilometres from Kuala Lumpur, marks a significant milestone in attaining the auto manufacturer’s vision.

PROTON’s vision is to build an integrated automotive city that will provide the necessary infrastructure and resources to support high volume manufacturing operations and enabling low unit cost production.

As an example, PROTON’s vendors will be incorporated into the city’s plans for ease of parts delivery based on the Just-In-Time delivery system. Vendor factories will be built alongside PROTON’s plant to form closer networking between PROTON and its supply chain.

3.2 Effectiveness Strategy

The Proton’s strategy, in retrospect, was a lesson in effectiveness :

The Product : Well-known national car or also known as “kereta rakyat”, sedan family size, average design and inexpensive material.

The Price : Value pricing and lowest in the passenger car range.

Distribution : Extensive distribution centres ( EON ), one at every town with lively showrooms.

Selling : Proton appointed sole distributor EON, to fully concentrate on Proton brand.

Advertising : Aggressive advertising in all major media, especially print media and TV with strong government support.

4.0 PROTON SHORTCOMINGS AND IT’S FUTURE

The Malaysian car Proton Wira’s waiting list is about 6-month as it is; and they will not sell the car to you unless you trade in an old car. It is racket really. And the Salesmen, they do not come to you anymore, you go to them if you want to buy a Wira car. Even if you go to them they still avoid you; (because they cannot deliver?). And if you have the money you still cannot buy the car. Probably because Proton Wira is the cheapest car of its class (other cars of the same class are taxed so heavily that they cannot compete fairly).

And now with the export of the Proton Wira, it has made it a difficult commodity to acquire in Malaysia. Most will wondered why they call it a Malaysian car at all if Malaysian have to wait 6 months to buy the car? With a waiting period of 6 months (and having to trade in a second hand car to get a new Proton Wira) is it really worth while buying it? But then buying another make of car one would be branded as unpatriotic. Waiting in line for a Proton, even when you eventually get one, the salesman offers you X ringgit if you are willing to give it up to someone else. The heartache starts after you drive it home. Then you realize the pride of the nation comes with a few rattles and noises. Things come off easily. Sometimes, the radio comes off in your hands. And this is NOT a security feature. And, if you have been awake in the last few years, you would know that the National car has been steadily rising in cost over the years. Reason: Yen. A yen for profit.

The standards for Proton is also far below what you should get for the money you pay. Parts are replaced not knocked because they are easily crushed on impact, thus making it worthless for knocking.

The Proton was supposed to be an affordable car for the average Malaysian. With it’s entry into the Malaysian market more than 10 years ago, within a few months taxes on foreign low cost cars (like the fantastic Sunny Extra) was increased putting it out of reach of most Malaysians. It became ‘the best selling cars ever’ due to unfair advantage. Not that it was of high quality, it does not meet the minimum standards required by, say UK, Australia.

When one looks at the broader picture, Proton is a miserable failure. It has made cars less affordable for the average Malaysian. It has given the Malaysian consumer less choice when buying a new car. It has made EON, a non-company prior to the existence of Proton, THE most powerful car dealership in Malaysia, despite consistent complaints of poor customer service. And, as you say, it has given Malaysians a poorer quality car than they could have bought for the same money before the import tariffs were imposed.

The justification for the protections that Proton enjoys is called the infant industry argument. Simply said, as a new industry Proton needs an extra edge to compete against imports. Tariffs on imported cars increase their prices making Proton cars more price attractive. Nevertheless, tariff on imports should be gradually lowered to keep Proton awake.

Now that Proton is so very popular and such a great car, the government still can’t afford to take off the tariffs on other cars. If people have already realized that the PROTON is a good car (as claimed), then it does not need to be protected. It is past the fledgling stage and now must learn to stand on its own feet. Let EON enter a free marketplace…If it is truly good, it will survive, otherwise it will DIE.

This will not happen until 2003…. when the Asian Free Trade Area (AFTA) takes full effect.

5.0 MARKETING ANALYSIS

5.1 SWOT Analysis

Strength Identified

1. Well-trained sales/service force conformance to the needs of customers.

2. Wide distribution centres.

3. Efficient production reduces the cost and reasonable price to give value to the product.

Weaknesses Identified

1. Long delivery schedules.

2. Customer claims.

Opportunities Identified

1. Effective distribution.

2. Lower to Medium class cliente – market share.

3. Currently monopoly of trade.

4. Marketing communication.

5. Variety models to attract customers.

Threats Identified

1. AFTA . in the year 2003.

6.0 CONCLUSION

I believe 90% of Proton buyers choose Proton over the imports because of price. Once you lift the tariff as it will be in 2003, you

1) loose the cash flow from the tariff

2) loose tremendous market share for the Proton.

Therefore, the car market industry which has been monopolize by Proton will certainly change in the next 3 years to come. No doubt, anyone could live with a Proton (lived with one for over 5 years), but I don’t think its many’s dream car except for the the price feature. Proton future may go on but it certainly will not be the No. 1 car after the year 2003. When AFTA is in force (in the year 2003), most of the other car prices will also be down. AFTA pushes for liberation of trade in the region through the elimination of intra-regional tariffs and the elimination of non-tariff barriers. Then Proton will have to compete with the same equal concept for market share. It is popular because it is the cheapest car in Malaysia. It is the cheapest after they impose 300% tax on import cars. Proton marketing strategy is generally built upon this low price distinctive difference to maintain as No. 1.