Perusahaan Otomobil Nasional Bhd

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Perusahaan Otomobil Nasional Bhd.

Kawasan Perindustrian HICOM, Bat
Selagor
Malaysia
Telephone: (+60) 3 511 1055
Fax: (+60) 3 511 1252
Web site: http://www.proton.com

Public Company
Incorporated: 1983
Employees: 6,000
Sales: RM 10.31 billion ($2.8 billion)(2002)
Stock Exchanges: Kuala Lumpur Stock Exchange
Ticker Symbol: PROT
NAIC: 336111 Automobile Manufacturing; 423110 Automobile and Other Motor Vehicle Merchant Wholesalers

Perusahaan Otomobil Nasional Bhd., better known as Proton, is Malaysia's largest manufacturer of automobiles, commanding as much as 65 percent of the domestic market. The company produces a full range of vehicle styles, from its popular Wira sedan to its own mini-van and sport utility models. While most of the company's car designs were previously based on re-branded models from its long-standing technical partner, Mitsubishi, in the 2000s Proton has begun developing its own technology in partnership with its 80 percent-controlled subsidiary Lotus, of U.K. sports and racing car fame. The addition of Lotus engineering and design technology has enabled Proton to reposition itself, at least for the export market, as a niche market player with a focus on the sporty, higher-end segment. Founded in 1985 under the auspices of Malaysian prime minister Mahathir Mohamad, Proton has long enjoyed protective trade barriers in its domestic market, with foreign imports taxed as high as 300 percent. With those barriers slated to come down at the beginning of 2005 as part of the AFTA free trade agreement, Proton has taken steps to boost its efficiency, including building a new, highly automated production facility with a capacity of up to 150,000 cars per year. The company is also looking to establish international manufacturing facilities, targeting Syria, Iran, and China. In addition to its domestic dominance, Proton has proven itself a strong competitor on the international scene as well, with sales in 50 countries, including much of Asia, the Middle East, the United Kingdom, and parts of continental Europe. Proton is listed on the Kuala Lumpur Stock Exchange. In 2003, the company's sales topped RM10 billion ($2.8 billion).

Homegrown Carmarker in the 1980s

Malaysia, like most of its neighbors, began a drive toward industrial development at the beginning of the 1980s in an effort to reduce the country's reliance on foreign-made imported products. Among the sectors targeted by Prime Minister Mahathir Mohamad for development was that of a domestic automobile industry. Rather than creating a domestic industry from scratch, however, Mahathir sought a partner with an established auto maker. In 1981, during a visit to the country by executives from Japan's Mitsubishi Corporation, Mahathir proposed the creation of a joint-venture to produce Mitsubishi-designed automobiles in Malaysia.

The drafting of the joint-venture project was turned over to government-owned Heavy Industries Corporation of Malaysia (HICOM), which began negotiations with Mitsubishi at the beginning of 1982. The government in the meantime drafted legislation, known as the National Car Project, which, in addition for providing for the creation of a new, domestic automotive industry, also put into place protective trade barriers, including import duties that reached as high as 300 percent on some foreign makes and models. By the end of that year, HICOM had reached a joint-venture agreement with Mitsubishi that gave the Japanese car maker a 30 percent stake in the new company.

Perusahaan Otomobil Nasional Bhd. was officially launched in May 1983. Construction began on the company's manufacturing facility, located at HICOM's Industrial Area in Shah Alam, in August that year. Completed in 1984, the plant, which used largely manual labor production techniques, boasted a capacity of 80,000 vehicles per year. The company took the country's symbol, the tiger, as its own, while adopting Proton as its brand name.

By May 1984, Proton had begun testing of a prototype, and, after holding a "Name the National Car" contest, gave its first car the name of Saga. That model was based on Mitsubishi's Lancer. While terms of the joint-venture agreement involved the transfer of technology that would enabled Proton to begin developing its own cars, the company's output in the mid-1990s remained based on Mitsubishi designs.

Proton launched the Saga commercially in July 1985, and, backed on the one hand by subsidized pricing policies and the other by the heavy trade barriers, quickly imposed itself as Malaysia's top car brand, with a 47 percent share of the market. Sales of Proton cars were handled primarily through a sister company, EON (Edaran Otomobil Nasional), formed in 1984. As EON built up its sales and marketing networks, Proton ramped up production. By 1987, the company had already built more than 50,000 automobiles.

Almost from the start, Proton targeted an international market. In 1986, it took a modest step toward this goal by exporting 25 cars to Bangladesh. In 1987, the company stepped up its export operation, with a focus on introducing the Proton name to the United Kingdom. A distribution subsidiary, Proton Cars (UK) Ltd., was formed the same year. Despite winning a number of awards at the International Exhibition in Birmingham the following year, actual sales to the United Kingdom were delayed until 1989.

In the meantime, Mitsubishi had stepped in to take over management of the Proton plant in 1988, helping to boost the facility's reliability record. In 1989, the Shah Alam site took over production of Proton's engines. At the end of that year, the company rolled its 150,000th car off its assembly line. By then, the group's domestic market share had already reached its peak, at 73 percent of all new Malaysian car purchases.

Retooling for the New Century

Sales continued to pick up into the 1990s, as the group completed its 300,000th car by mid-1991. The group had also begun expanding its range, launching the Megavalve Proton Saga in 1990, followed by a 12-valve version in 1991. In addition, production capacity was expanded with the opening of the company's Engine Assembly and Transmission factory in July 1991 followed by a new line stamping production unit the following year.

Proton went public in 1992, listing on the Kuala Lumpur Stock Exchange. In that year, the company at last added its second model, the Iswara. Matathir sought to step up the pace at Proton, which was hampered by its dependence on imported Japanese parts for much of its production, and in 1993 the prime minister turned to former classmate and leading Malaysian industrialist Yahaya Ahmad for help.

As one of the country's most influential businessmen, Yahaya had also developed his own automobile operation, among many others, assembling Isuzu, Mitsubishi, and Tata cars for the domestic market since the late 1970s. With Yahaya on board, the company launched its own research and development facility in 1993, which joined in the development of a new model for Proton, the sporty Wira, launched in 1993. The new car helped rejuvenate Proton and enabled the company's total production to top the half-million mark that year. In September 1993, Yahaya's Diversified Resources Berhad was awarded the contract to produce a new three-door vehicle for Proton.

Proton's exports had been increasing strongly, topping 10 percent of its total production by mid-decade. In 1994, the company began exports to Indonesia, followed by the creation of a subsidiary, Proton Philipinas Corporation, bringing the company's designs to that market as well.

Proton also went in search of additional partners, with France's Citroen agreeing to provide engines and technological assistance for new Proton models. These started to come more quickly and included the launch of the Wira Aeroback in October 1992, the Satria in 1994, and the Perdana in 1995. Also in 1995, Matathir rewarded Yahaya's work with Proton by allowing Diversified Resources to acquire the government's majority stake in Proton. The following year, the company released the Putra, a two-door coupe.

The year 1996 saw a major landmark in Proton's growth when the company agreed to pay more than $100 million, including a $20 million working capital commitment, to acquire an 80 percent stake in British sports car legend Lotus Automobiles. Although greeted with some skepticism, the purchase was intended to give Proton its own in-house development expertise as part of the group's effort to create its first, truly Malaysian design. The addition of Lotus also signaled the group's intention to extend its range into the higher-end of the automotive market, especially for its export vehicles. At the same time, the company pledged to maintain Lotus's engineering and design staff—including their work for third-party car makers—and to continue production of the company's elite Elise sports car.

Proton entered 1997 with high hopes and in that year launched a major expansion of its Shah Alam manufacturing site, nearly tripling its production capacity with the installation of a second facility. By 2000, the company's production annual production neared 200,000 cars.

Company Perspectives:

Corporate Mission: To become a successful Malaysian automotive engineering and manufacturing company globally by being customer oriented and producing competitively priced and innovative products. In conducting our business, we are guided by our five core commitments. TO OUR CUSTOMERS: We strive to deliver total customer satisfaction through the provision of quality automobiles and related products and services more efficiently and effectively than our competitors. TO OUR SHAREHOLDERS: We strive to generate good earnings with steady growth through the efficient management of resources. TO OUR EMPLOYEES: We are committed to promote a conducive working environment while focusing on human resource development and long-term employment. TO OUR BUSINESS ASSOCIATES: We strive to develop and maintain mutually-beneficial, value-added relationship of the highest degree. TO OUR NATION: We shall be a responsible corporate citizen.

Yet 1997 also marked the beginning of a difficult period for the company. In that year, Yahaya was killed in a helicopter accident. At the same time, the company tumbled headlong into the economic collapse that affected much of Asia. Having extended its finances both with the acquisition of Lotus and the extension of its manufacturing base, Proton was all the more vulnerable to the sudden drop in car purchases both at home and abroad. On the domestic front, the company was forced to bow to the government's insistence that it not raise its car prices. Meanwhile, the company found itself edged out on the international front by its wealthier and more aggressive competitors from Korea and Japan.

With its finances in a precarious position, Proton faced an uncertain future. The situation became more problematic, when Malaysia agreed to join the ASEAN region's AFTA free trade agreement. As part of that pact, the country assented to lower and even abolish most of its protective trade barriers, including the heavy duties on foreign cars and parts. Proton now braced itself for a new era of competition, initially scheduled to start in 2003.

Proton successfully lobbied, however, to push back the end of the government's protection to the beginning of 2005, which allowed the company to begin retooling. In 1999, the company began automating its production line, adding its first robots that year. Proton also intensified the development of its first in-house models, incorporating Lotus technology for the first time. By 2000, the company was ready to launch the Waja ("steel" in Malay), which, with its sleek, racy design clearly displayed the influence of Lotus's design and engineering expertise. The project had cost some $250 million to develop, including the cost of launching the group's research and development center.

While the company was making great strides on the design front, Proton's production facilities, which continued to rely in large part on manual labor, were now out-of-date, leaving it ill-equipped to face the fast-approaching competition. As part of its drive for greater efficiency, the company began subcontracting a larger number of components to third parties. At the same time, Proton encouraged its components suppliers to set up manufacturing facilities in closer proximity to the company. In 2001, Proton began construction of an entirely new facility in the newly built Proton City development in the town of Tanjung Malim. The state-of-the-art facility would have a production capacity of 150,000 cars per year and an automation level of 60 percent, enabling the company to slash nearly one-third off its production costs. The new site, which included space nearby for the company's growing list of components-producing partners, cost $400 million.

Completed in late 2003, the new facility formed the centerpiece of a renewal of Proton, which, having produced few new models at the beginning of the decade, had seen its market share slip by some 27 percent by the end of that year. Proton then began preparing the launch of an entirely new line of vehicles for 2004. As the date for the lowering of the country's automotive trade barriers approached, Proton began searching for new, foreign manufacturing opportunities, reaching an agreement to being producing cars in Syria and negotiating for manufacturing licenses in Iran and China. Observers, however, had already begun to question Proton's ability to survive as an independent in an era of rapid consolidation that pitted the company against the world's global automotive giants. With growing design and production confidence, and continued backing from Matathir, Proton prepared to put up a good fight to remain a Malaysian flagship enterprise in the years to come.

Principal Subsidiaries

Distribution Centre Sdn. Bhd.; Group Lotus plc (UK; 80%); Lotus Cars Ltd. (UK; 80%); Lotus Cars USA Inc. (80%); Lotus Cars USA Inc. (80%); Lotus Engineering Inc. (USA; 80%); Lotus Group International Ltd. (England; 80%); Lotus Motorsports Ltd. (United Kingdom; 80%); Marco Acquisition Corporation (United States); Proton Cars (UK) Ltd.; Proton Cars Australia Pty. Ltd.; Proton Direct Ltd. (UK); Proton Edar Sdn. Bhd.; Proton Engineering Research; Proton MC Metal Sdn. Bhd. (75%); Proton Parts Centre Sdn. Bhd. (55%); Proton Properties Sdn. Bhd.; Research Technology Sdn. Bhd.; Technology Sdn. Bhd.

Principal Competitors

Toyota Motor Corporation; Honda Motor Company Ltd.; Shenyang Brilliance Automotive Company Ltd.; Mitsubishi Motors Corporation; Yuejin Motor Group Corporation; Hyundai Motor Company Ltd.; Mazda Motor Corporation; Daewoo-FSO Motor S.A.; Isuzu Motors Ltd.; Kia Motors Corporation; Toyota Astra Motor PT.

Key Dates:

1981:: Malaysian Prime Minister Matathir begins plans to establish the first Malaysian automaker.
1983:: Perusahaan Otomobil Nasional Bhd. (Proton) is launched as a joint-venture with Mitsubishi.
1985:: The company begins distribution of its first model, the Saga, Malaysia's first national car, which captures a 47 percent share of the domestic market.
1986:: The company begins operating internationally by exporting automobiles to Bangladesh.
1987:: A U.K. subsidiary is established as Saga captures a 73 percent share of the domestic market.
1992:: Proton goes public on the Kuala Lumpur Stock Exchange.
1995:: DRB, controlled by industrialist Yahaya Ahmad, buys the Malaysian government's majority stake in Proton.
1996:: Proton buys 80 percent of U.K. sports and racing car maker Lotus.
2000:: Waja, the company's first in-house developed automobile, is launched.
2003:: The company reaches an agreement to begin automobile production in Syria and applies for a manufacturing license in China.