Malaysia to help develop Indonesian national car

Proton Holdings Bhd has signed a memorandum of understanding with Indonesia’s PT Adiperkasa Citra Lestary, witnessed by Malaysian Prime Minister Najib Razak, Proton Chairman Mahathir Mohamad and Indonesian President Joko Widodo during his first and recent bilateral visit to the neighbouring country. Last year, Najib dusted off the longtime proposal for an “ASEAN car” and Widodo had expressed an interest in the idea. The MoU would lead to the more established, albeit struggling, Malaysian national carmaker helping the up-and-coming Indonesia car industry in examining the possibility of manufacturing its own national car. If the feasibility study bodes favourable predictions, the companies will enter into a joint venture.

Widodo (right) visits the Proton factory with Mahathir.

According to Mahathir, who is Malaysia’s former Prime Minister and founded Proton in the eighties when he was in office, the study should take six months. "We would like to make use of the joint venture with Indonesia to expand and become an ASEAN car," he said. ASEAN, or the Association of South East Asian Nations, consists of 10 member countries, which are Malaysia, Indonesia, Cambodia, Brunei, Laos, Myanmar, the Philippines, Singapore, Thailand and Vietnam. For the ASEAN car concept to become a reality, it would involve buy-in and investment from all these countries.

But, it is a good start. Auto sales in Indonesia exceeded a million vehicles last year but is still dominated by foreign car makers, such as Toyota. Proton has relatively more experience and technical know-how, while populous Indonesia with a potential of multiplying its car sales still could be a lifeline for floundering Proton. While it once dominated the roads of Malaysia, Proton’s domestic market share plummeted from 50% a decade ago to 21% in 2014; export numbers have been minimal, and sales have been hindered by a reputation of bad quality, earning Proton cars the disparaging moniker “kereta tin milo” (a car made from flimsy Milo tins). Read also: Malaysians not keen on made-in-Malaysia Cars and Will the Iriz save Proton?

Mahathir is of the opinion that there should be tariff protections to aid the growth of the Indonesian auto industry, the same heavy import taxation practised by Malaysia that buoyed Proton during its hey-days. Citing countries like Japan and South Korea as examples, he said "we should adopt some of their strategies. It will not be unusual for Malaysia and Indonesia to consider protecting an infant baby." 

However, critics of Proton say that it is exactly these protectionist policies that led to Proton’s downfall; without fair competition to keep the automaker and its products competitive with the global market, buyers would rather fork out more money for imported vehicles with better technology and fewer quality issues.

Anyhow, the MoU is nonbinding and the project could be easily scrapped. It is not the first time that Indonesia has mulled over the idea of a national car. In 1996, the then-President Suharto awarded the license to a company (owned by his son) to produce a national car, the Timor, in a JV with South Korea's KIA. The huge tax break made the Timor cars cheaper than those produced by the likes of Toyota and Honda. However, when the country was hit by the Asian financial crisis, the billion-dollar aid from IMF was doled out with the requirement that the national car programme was scrapped.

 

image: Malaysia Insider