Saturday, 14 April 2007

How to save Proton

So, our Prime Minister is intervening personally in order to to save Proton, but he still can't get a meeting with the Volkswagen chairman.

Well, I've got your saving Proton right here. (Warning: this is not going to be pretty.)

Easy-peasy steps (not).

1. You got the wrong partner. Choose Ford, which owns, among other brands, Volvo.

2. Co-operate on building the Tandem, the most revolutionary new car design of the past 20 years that nobody has heard of. Tell them you'll build it for them at Tanjung Malim and buy the 1st 100,000 off the line. Just as long as Volvo shows Proton how to build it. And the vendors too.

3. Tell them you'll make it work in Malaysia because you're a National Car Company and through a combination of taxes, duties, tolls and other incentives, you can make basically everyone in Malaysia buy this car in order to get it rolling and reaching production capacities sooner. If they don't believe you, fly them in to KL and have them sit at the PLUS highway toll stand at Sg. Besi counting the Sagas and Wiras that pass by. Then tell them all these model designs are 12-25 years old.

4. Export-wise, Ford and Volvo have to take over. Proton has a basically crappy reputation in Britain, but I hear they do better in the Middle East.

The facts.

Let's just state the obvious.

1. Proton is a national car company. State-owned. Let me repeat and highlight, STATE-OWNED.

2. It is declining in market share through a combination of poor quality products, safety issues and lack of models. After 20 years of operating, it still only produces sedans, completely misreading (or perhaps not even bothering to read) the market's reception of MPVs, SUVs and crossovers. (It also over-estimated the market's reception of freakmobiles.)

3. It has a knowledge gap in manufacturing to safety standards now prevalent in the world, and is in dire need of knowledge and technology transfer.

4. It has an alleged high cost base in the inefficiencies of its vendor network.

5. It owns Lotus, a sports car marque known for the exceptional handling of its models.

And so, to these facts: No. 2 and 3 and 4 are serious problems. No. 5 is an asset, but one that's not really paying off at the moment. No. 1, well, I don't see it as a problem. Plenty of state-owned corporations do well, given the proper management and incentives. (Petronas being a very clear example.)

The challenge therefore is to find a partner what can overcome points 2, 3 and 4, maximise point 5 and turn point 1 into an asset, an opportunity. To which we arrive.

You know what a state-owned company automatically has? Three important things:


Access to a market.

And lastly, if the formula is right: Balls.

Now, to see why this plan would address the above points, one by one:

Turning "state-owned" from problem to benefit.

1. I've written elsewhere on why I'm a fan of the Tandem. However, I recognise that as a product that needs to be marketed by a business, it's got a very slim chance. The benefits of using the Tandem are only felt the more people use it - a positive externality problem you economists out there would be familiar with. And in this case, its not like the 1st fax machine where at the least, you and your branch office could communicate even if no one else had it. In this case, a seriously large amount of people need to use it before congestion starts to ease.

This means government intervention. Governments try to regulate externalities where possible and feasible - smoking zones to get the smokers away from the non-smokers, carbon taxes on your factory emissions. These are regulations for negative externalities, but incentives to promote positive externalities also exist - for instance, California provides tax rebates to you if you install solar panels on the roof of your home, in order to alleviate the burden on its over-stretched electricity grid. In a nice allegory, the Tandem would alleviate the burden of an over-stretched tranportation grid.

For the Tandem, a whole slew of incentives would need to be provided:

- Financial: reduced road taxes, tolls, excise duties and COEs (for those in Singapore) for Tandem ownership.

- Logistical: Dedicated Tandem/motorcyle lanes only.

So, basically with the Tandem, you've turned what normally is a liability - a state-owned enterprise, uncompetitive and bloated - into (potentially) an asset - a state-owned enterprise, with patient and far-sighted shareholders who can realise benefits more than individual private enterprises. This stands to reason: governments would save the most in construction and land acquisition costs for road construction, and they should justly foot the bill for widespread adoption of the Tandem.


2 and 5. The two issues which will be of primary importance for a vehicle of this sort will be safety and handling. Safety, because you're dealing with a much more compact automotive frame while still needing to meet safety standards. Handling, because you're dealing with a narrow profile prone to cornering problems. Volvo and Lotus are marques which have world-renowned reputations for them respectively. Lotus, Proton already has. It would only need the expertise of Volvo to finish the job.

And let's be honest - the Tandem looks at this stage like a lab project (I could be wrong, but no news has come out since the first invitation to the press to view it.) Too much government lobbying needs to accompany its adoption, as discussed above. It's something which Volvo has in their portfolio, but all it could do in the end is provide influence to their ongoing 3CC concept car, and that's it. But if someone can come along and say to them, we'll take your on-the-shelf lab project and run with it, in exchange for you providing us some technology and knowledge transfer, I think they'll go for it. Not much to lose on their part. That's synergy to me, in terms of design capability and corporate win-win.


3 and 4. One of the primary reasons for partnering with a larger, foreign auto-maker is the access to technology and manufacturing know-how that they provide. That much is obvious. On these 2 points, I can't comment that Ford is a better partner that GM or Volkswagen, but I will say this: you need something to trade with, something that will make it worth their while to talk to you. And the Tandem, overlooked and under-estimated, is precisely that bargaining chip, a chip which also happens to serve Proton's national aspirations.

There's a unwritten rule in setting targets, for sales, for learning, or for anything - aim for something beyond what you actually want to achieve. Meaning to say, in order to catch up, you need to leapfrog. You can't just try to catch up, otherwise you'll never do so - you'll always be introducing a new feature 2 years after someone else has already done the same.

The Tandem represents an automotive challenge which if surmounted would elevate its manufacturer a step beyond its contemporaries, something others would have to catch up to. Such opportunities come rarely in business. Attempting to solve the real-world problems of implementing the Tandem - in a package that is safe, easy, and economical to own - would accelerate capabilities in automobile manufacturing far beyond than simple catching up, because the company would be solving problems no one is attempting to do so at the present time.

Betting the farm

You'll find examples of this sort of leap forward in history - the steamship. The 1st automobile. The 1st jet airline. The Boeing 747. The Tandem is a much more prosaic example, but its still different enough from current cars to warrant comparisons to those great icons of manufacturing. Such iconic products represent a great throw of the dice by the companies involved, an almost all-or-nothing, bet-the-farm strategy which vaulted them beyond what others were at the time.

Such boldness was what Dr. M had in mind, I think, when he started this project. If you ask me, there were lots of bumps along the way, and a lot of Malaysians have paid for Proton's foibles for the past 20 years. However, if we still want to do it, I think this is the plan that the vision would need to be attached to, and the only decent way that Proton can go beyond its current dead-end trajectory.

Told you it wouldn't be pretty.

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