Will Proton survive in a level playing field?

This must be the fear of many backers of the Malaysian national car Proton now that the government has announced measures to liberalize Malaysia's auto industry.

This would mean that foreign cars will be cheaper and affordable to the consumers as the government has cut excise duties on foreign cars and reduced import duties for vehicles made in Southeast Asia from 15 percent to 5 percent.

The government’s decision to do this is to make Malaysia a regional auto industry hub.

And the party most affected by this will be Proton. It has now been asked to drop its prices to compete with other makes.

Prime Minister Abdullah Ahmad Badawi has thrown Proton some challenges – to cut prices, to compete, to improve and to expand.

He said:

“The prices of Proton (cars) will unavoidably be reduced. Proton has to compete.
Proton has to have a price on its products which will be acceptable by the market. For them to survive, Proton must grow big and be competitive. Right now, it has a very small capacity. There is room to improve.”

The invasion of cheaper Asian cars in the recent past has affected Proton badly, so much so that its founder and present adviser Dr Mahathir has been asking the government to change some government policies to continue protecting Proton.

Proton’s share of the domestic passenger car market dwindled to 41 percent in 2005 from around 60 percent in 2002.

With this new development now, Proton needs to catch up fast if it still wants to be the popular brand in Malaysia.

The question remains if it would still be able to compete in both local and international market which is awashed with many cheaper and better quality cars.

Professor Shamsul Baharrudin from Universiti Kebangsaan Malaysia said this in a radio interview:

“Proton cars, as it is, are still winning the market by virtue of the price
difference. So if the price is reduced, most likely a lot of people will most
likely want to have an imported car, more out of prestige and out of the
confidence of the car's performance rather than physically and technically
better cars.”

It is now up to Proton to show that it truly can make quality and affordable cars. However we don’t want them to come running to the government in a year or two asking to be bailed out.