03 November 2009

Cover Story:Plans being executed

Cover Story:Plans being executed

Come January 2010, it will have been four years since Datuk Syed Zainal Abidin Syed Mohamed Tahir took the reins at Proton Holdings Bhd. In his tenure, he has faced many challenges and seen many ups and downs at the automaker.

Brought in to replace Tengku Tan Sri Mahaleel Tengku Ariff in 2006, Syed Zainal had big shoes to fill. The flamboyant Tengku Mahaleel was a dominant personality and had the backing of former prime minister Tun Dr Mahathir Mohamad, who is an adviser to Proton.

Syed Zainal was an unknown before he took over as managing director of Proton. Then chairman Datuk Mohamed Azlan Hashim and he managed to remove some of the old hats in Proton and chart new strategies for its growth. In fact, it was Azlan and Syed Zainal who made the final presentation to the Cabinet two years ago when they decided not to take on Volkswagen AG as a strategic investor.

It was a decision that did not go down well with Proton’s major shareholder Khazanah Nasional Bhd.

Since then, Azlan’s term as chairman of Proton has ended but Syed Zainal has stayed on at the helm. Datuk Mohd Nadzmi Mohd Salleh is now the chairman of Proton.

In a candid interview, Syed Zainal shares some of his thoughts on the company and the route he has charted for it.

The Edge: There has been quite a bit of talk lately about a takeover of Proton. What are your thoughts on this?

Syed Zainal: There are plans that are underway and being implemented. So, regardless of what is in the news, management has done very well in implementing what we think is good for the company.

The plan is something we have spoken about often enough; you know, exports, products, collaboration and so on.

Unfortunately, over the last couple of weeks, the attention that we have been getting has done a lot of damage. For what we want to do, suddenly a rumour came up about a new owner, so everybody is holding back… this kind of thing is not necessarily going to be good.

What we believe is that people should realise, irrespective of what is going on, this is a company that is very solid in terms of what it wants to do; we would like to separate in terms of operations and shareholders.

My only comment on the shareholders is that I believe they will do what’s best for the company, the country and the automotive industry in general.

There has been talk of Proton and DRB-Hicom Bhd doing Volkswagen assembly...
We hope to come out with a solution… at the end of the day, Proton and DRB-Hicom will also benefit. Proton’s wish list is very clear... we want products, we want capacity, we want technology. DRB-Hicom’s wish list involves capacity, so it’s not so difficult.
If you look at the wish lists, they are easy to put together. But what does Volkswagen want? They want a partner that can cement them in Malaysia and provide them a platform for Asean.

So, there will have to be a compromise. For DRB-Hicom, it’s mostly based on assembly, but for Proton, we are also talking about platforms and others. The only thing we [Proton and DRB-Hicom] compete on is capacity… so we can compromise. Basically, a balance will be struck and everyone will come out of the discussion happy.

Will the tie-up with Volkswagen deter Proton from forging alliances with other companies, and could you elaborate on your strategy?
Our agreements are always non-exclusive… but at the end of the day, we cannot be going to bed with so many people. We want a bigger scheme for collaboration. We are inclined to accept technology from any company that can fulfil our wish list. We prefer any company that can give us maximum fulfilment of where we want to go.

For Proton to be relevant, it has to focus on the markets outside... we know we cannot survive on Malaysia alone. We now have to push to Asean and the growing markets like India, China and Iran.

In China, for example, volume for the Gen 2 is 1,000 CKD (completely knocked down) kits a month. We have committed ourselves to Youngman [Automotive Group] for the Gen 2 and the Persona. Also, Youngman is building a new car, a variant engineered by Lotus. Lotus gets about US$20 million for the engineering work. We get the licensing for the platform once the new car rolls out. The new car will also use components carried over from the Gen 2.

When we used Mitsubishi in 1984, we were with the company until 1996. We are doing the same thing here with Youngman. To take Proton to China today, we need to invest RM1.2 billion and spend RM200 million to RM300 million on building a brand, and you don’t know if you will succeed. So far, we have not invested a single sen in China.

Similarly in Iran, they are looking at building a total industry volume of 2.5 million cars. We are willing to share our technology, co-branding or whatever… our technology is brand new, so they don’t have to invest… in return, we only want 10% of the market share… 10% of 2.5 million is 250,000. We are willing to give them our Campro and Lotus platforms.

To be honest, we did talk to Mitsubishi about a global small car, based on existing platforms. We are not competing in their markets, we are not going to Japan… but why don’t we go to India together? My business model is what Toyota, Peugeot and Citroen do in Czechoslovakia. Why can’t we do what Daihatsu, Perodua and Toyota did on the Myvi? But to build that, you need a compromise… you cannot demand everything, so you must give in a little bit, but you get a product that is proven.

You say you didn’t invest a single sen in China. What about Iran and India?
In Iran, things haven’t reached that stage yet where we have to invest heavily. Eventually, we have to invest, but we are not scared to invest in facilities. We are already investing in jigs for our Gen 2 CKD in Iran. If we think we need to invest, then we will. But obviously we will have to work with the government to invest.

We have been talking about India for a while now… now, we are at the point of choosing a partner.

We have to work with a local partner with strong local expertise, strong localisation expertise, manufacturing base and distribution network. So, we have shortlisted a few and hope to close the deal by this year.

There may be a time lag of a year due to the downturn, but what we have planned for China, India and Iran is very much ongoing. Exporting will take place from these countries. For example, from Iran the cars can be exported to the Middle East. Iran is a left-hand drive market as is China. India is right-hand drive, so we have two homes which are left-hand drive and two which are right-hand drive. Based on the location, we will have to decide where the cars are coming from and whether they are CBU or CKD.

What is the difference between Proton now and when you first came in? When do you see all your plans bearing fruit?

Now, it is no longer what Proton believes will sell, but what we believe customers want to buy.

So far, the numbers have stacked up. The Saga still sees sales of about 5,500 to 6,000 units a month while the Persona bookings are still about 3,500 to 4,000 a month… so, even two years after we launched, we are still maintaining [the numbers], and now we are rolling all these cars overseas. Same thing with the MPV, the Exora. These are now the cars that we want to push and focus our rebranding activities on.

Three or four years ago, we couldn’t do this as we were relying on old technology, on models that had problems. The market is fixed; we cannot go into a two-door coupé… the market doesn’t want a two-door coupé.

These measures have been approved by the board and implemented in the company. The business model has been fixed, the execution… of course, China is coming in, India by 2010 or 2011... revenue will start kicking in. As for Iran, by early next year, once the negotiation with Saipa (Automotive Manufacturing Group) goes through... So, by 2010, all these will start to bring in revenue.

What is your partnership strategy?
We now have to develop strategic collaboration… we need to strengthen our quality, our manufacturing, our know-how… this we can’t do ourselves.

We have our core products, other segments we will have to collaborate. It could be as simple as rebranding or rebadging… you may ask, why is Proton doing this? But let’s get realistic. There’s not even one OEM [original equipment manufacturer] that doesn’t do this… even Toyota does it… so, why should we be different? We are not going away from our core value… our core value of building capacity is still there. But why invest half a million in a Perdana? It doesn’t make sense… investments should be in core models… we could tie up with Mitsubishi, could be Volkswagen… it could be anyone who fits our business scheme. Our wish list must be subscribed for. Our wish list is about products, markets and territories.

What are your thoughts on the National Automotive Policy (NAP)?
For Proton to execute all its plans, we need a very stable environment to operate. The NAP should encourage people to come and invest. We need to encourage people to export, we need to strengthen our dealers, we need to strengthen our vendors, and so the NAP should be structured to execute these. At the same time, encourage FDI [foreign direct investment] to come in… we also understand the government needs to liberalise, but you can liberalise or opt for controlled liberalisation. If you want to be another Thailand, it’s too late in the game. You cannot attract anybody else, so take a different route, attract people like Volkswagen and promote Malaysia as a premium brand in the sector.

When you bring a premium brand, it will bring other premium qualities and initiatives that will benefit our vendors.

The NAP should also encourage high technology, like alternative fuels. There should also be corrections made to the import of used cars and used spare parts. APs [approved permits] can continue but they must be controlled. But with used cars, the government has to be strict. Second-hand parts, for example, should not be allowed at all… we must have a sustainable policy and at the end of the day, Proton will play a prominent role… and I am very strong in saying there should only be one national car.

Do you think it’s time to do away with the national car and non-national car segregation?
If Toyota wants to make Malaysia its centre, we should encourage it. For Proton, which has invested so much, we shouldn’t be getting the same as the rest. Which country gives the same for a company that invests RM100 million compared to RM2 billion?

What about a tie-up for a new engine?

We have two options that we have studied; we also want to look at other OEMs. So, we have not decided yet, but we know that technology changes very fast. So, we need a balance between control and technology. Hopefully by next year, we will decide. The Campro will last us until 2014.

When is the move to Tanjung Malim happening?
The total move to Tanjung Malim will happen in three years. Now, we are operating in three factories and at slightly more than half the capacity. We are duplicating our resources, but the priority earlier on was the product, not the factory. Now, we have a stable product and given a choice, we believe it’s better to shift to one place. And given a choice between Tanjung Malim and Shah Alam, obviously we pick Tanjung Malim.

It’s about putting everything under one roof. It will be better from a logistics, operations, manpower and efficiency standpoint.
Obviously in Shah Alam, we are sitting on very expensive land, which could be utilised better. So, we would like to think that going to Tanjung Malim is a self-funding mechanism. We told the government that for the NAP, we should be like Thailand, where they encourage everyone to go to Rayong.

How many cars do you hope to eventually produce in Tanjung Malim?
We believe CBU [completely built up] capacity will be 350,000 max. I’ve never said it should be one million. CKD should be in China and India. Now, we are at about an installed capacity of 180,000, but design capacity is about 250,000. So, without much investment, we can beef capacity up to 250,000 and with an investment of RM400 million to RM500 million max, capacity can be expanded by an additional 100,000.

Our 10-year business plan is to produce about 900,000 cars, of which about 300,000 to 350,000 will be produced in Malaysia, about 200,000 to 250,000 in China, 200,000 to 250,000 in India and 200,000 in Iran. All that combined will give you a Proton network of about 900,000 cars.

Previously, people said Proton would invest in one million cars… where do you sell the one million CBUs? Now, we are running at about 200,000 for domestic and export, so we expect to reach 300,000 in two years.

What are the model launches you have in the pipeline?
Next year will be the Waja replacement launch. Hopefully, if everything goes well, next will be the Perdana. After that will be the Persona, which will be our next generation global car… We will not allow cars to be more than seven years old. Actually, five years is our target. The Persona was launched in 2007, so in 2012, it will be five years old. We need to launch our global car (the new Persona)… it must have a global reach. It will be a symbolic model.

It must compete with the models of Hyundai, Toyota and Honda… we are getting an Italian company to do the styling. You need to think big… I told our chief designer… no offence but for this new Persona, I want the Italians to do the styling. The look must break down barriers. Even the Japanese use it, so why not us?

This article appeared in The Edge Malaysia, Issue 775, Oct 5-11, 2009.

Macam best jer? bacala lagi....

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