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Into the arms of the Rising Sun: Malaysian national car maker Proton cooperates with Suzuki

@Nihonjin1051 @macnurv @70U63 @powastick

India has a large consumer base for cars which is bound to grow over the next 10 years as the numbers of the Indian Middle class rise, Proton should try & invest in the Indian market..

If required it can even come & make it's cars in India by opening a plant here or use an existing plant. India's PM is firmly pro-Business & pro-investment.
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India abuzz over Proton-Suzuki tie-up

KUALA LUMPUR, June 19, 2015:

While Proton Holdings Bhd chairman Tun Dr Mahathir Mohamad got many astir late last year with supposed plans to set up a Proton assembly plant in Bangladesh, it is now India’s turn to get excited – judging from the buzz in Indian media.

The tie-up between Proton and Japan’s Suzuki Motors announced few days back is seen as another push by Proton to gain a foothold in what is arguably one of the most competitive car markets in the world.

The Hindu newspaper noted that Proton had already been eyeing a facility in Andhra Pradesh some years ago and the Suzuki partnership may give the Japanese firm another option in tackling the fierce battleground of medium-prized cars which many foreign makes are already in.

But a more likely scenario is that Indian-focused Suzuki models may make their way to Malaysia instead, reported Business Insider India.


Similar to how Volkswagen has successfully launched its budget-priced Indian Polo model here in Malaysia, the Maruti Suzuki partnership could lead to several tried and tested Indian compact models making their way here.

Among these may be the Celerio, Wagon R and the Alto models – seen to be ideal for the Malaysian market.

The Proton-Suzuki deal could see a compact passenger car be assembled at the Proton Tanjung Malim plant from August next year.


India abuzz over Proton-Suzuki tie-up - The Rakyat Post - The Rakyat Post
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Suzuki-Proton deal to benefit Maruti

In a move that will boost exports of the India subsidiary of Maruti, the Suzuki Motor Corporation has inked a deal with Malaysian carmaker Proton for the assembly and sale of an entry-level model in its domestic market, according to an ET report.

As per the agreement, Suzuki is likely to supply completely knocked down (CKD) kits of cars to Proton, Malaysia's first carmaker established in 1983, which currently enjoys a 17% market share. The company sold about 116,000 vehicles in 2014.

The Memorandum of Understanding (MoU) was signed on June 15.

Under the agreement, the first model will be a compact passenger car to be assembled by Proton at its Tanjung Malim plant from August 2016. A decision on additional models will be taken after studies by Proton and SMC.

Moreover, the Malaysian carmaker will assemble cars and distribute and sell them under its own brand through its network in Malaysia.

Suzuki, which holds a little over 56% in Maruti Suzuki India, its most profitable subsidiary globally, has similar sourcing arrangements with other companies too.

The company sourced the A-Star hatchback made by Maruti Suzuki at its Manesar plant for Nissan Motor, which sold the car as the Pixo in Europe. The arrangement helped Maruti Suzuki increase exports by 50,000 units a year. Maruti also ships the Ertiga multipurpose vehicle as a completely knocked down unit for assembly in Indonesia.

Meanwhile, sources in Maruti Suzuki said that its compact 1000 cc models such as the Celerio, Wagon R and the twin Alto models could be ideal for the Malaysian market.


"We have no direct communication yet, but as in the past, there are many models which we are already exporting as CKD of Ritz and Ertiga to Indonesia that could well be extended to other models from the Indian market," a company source said.

Automotive analysts said Suzuki's new deal could fill a void for Maruti that was created when the A-Star was discontinued last year. "Beyond an instant access to yet another strong export market, the development may help Suzuki Motors regain some of the volumes that the company had lost during the transition of Pixo, which was a great value addition to Maruti exports from the Manesar plant," said Amit Kaushik, associate director at IHS Automotive, an international consultancy.
(Image: Indiatimes)

Suzuki-Proton deal to benefit Maruti | Business Insider India
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With Suzuki, Proton may look at India | Business Line

With Suzuki, Proton may look at India

New ally in tow would change outlook for Malaysian carmaker

It is way too early at this point in time but the recent collaboration with Suzuki may just give Proton another impetus to enter India.

The Malaysian carmaker is keen on spreading its wings in Asia-Pacific and what better destination than the subcontinent which is on its way to becoming the third largest automobile market in the world.

There was a time when Proton was looking at setting up a facility in Andhra Pradesh some years ago but nothing really came out of it. It now remains to be seen if ally, Suzuki, will facilitate an entry though there many issues to be addressed.

In the first place, the Indian market has changed dramatically over the last few years with buyers now inclined to going the extra mile in picking up cars with smart features. In such a setting, Proton may just have its work cut out in offering something better beyond its current range of small cars, sedans and MPVs.

Two, it will not be the easiest of tasks convincing customers to go in for a Malaysian car brand when the more popular choices are Japanese, Korean and German. Finally, there may not be a compelling business reason for Suzuki to help launch Proton in India.

The present agreement will help the Japanese automaker grow its presence in Malaysia as part of a strategy for ASEAN. It will supply kits for a Suzuki model which Proton will make at its own plant. This will then be sold under the Proton brand through its network in Malaysia.

The first model, a compact car, will be made at the Tanjung Malim plant from August 2016. According to Suzuki, other models will be mutually studied by the partners. In addition, supply of engines and transmissions by Suzuki to Proton and subsequent installation by Proton for its own models will also be explored. Osamu Suzuki, Chairman & CEO, has hinted at developing a “comprehensive synergy” between the two companies.

So Proton won't be designing or working on new models but instead will rebadge the Suzuki models. The only selling point that would help Proton in Indian market would be the price, as Indian consumer have more options available to them. I honestly believe that Proton does not have anything to offer to Indian consumers with sub standard manufacturing quality products.
 
So Proton won't be designing or working on new models but instead will rebadge the Suzuki models. The only selling point that would help Proton in Indian market would be the price, as Indian consumer have more options available to them. I honestly believe that Proton does not have anything to offer to Indian consumers with sub standard manufacturing quality products.


I'm definitely sure that there is potent room for improvement for Proton. :)
 
I'm definitely sure that there is potent room for improvement for Proton. :)
Yes, but in Malaysia a company used for patronage this is impossible.
@macnurv is right.. I doubt you have ever seen a company in Japan which only exists for patronage or just for the sake of it.

Such companies(PSUs) are prevalent in India!! & perhaps even in malaysia
They only exist to satisfy the worker unions+to hand out extra posts of power to loyalists. Most of them make no profit+ are very inefficient

Innovation & creation in such companies is close to impossible & is generally discouraged in most cases
 
So Proton won't be designing or working on new models but instead will rebadge the Suzuki models. The only selling point that would help Proton in Indian market would be the price, as Indian consumer have more options available to them. I honestly believe that Proton does not have anything to offer to Indian consumers with sub standard manufacturing quality products.


Hi ,



You made a very good point about some of the inefficiencies in Malaysian automotive industry and the need to adopt more progressive policies. A motor industry has the potential to give many opportunities to local component suppliers, often small and medium sized enterprises and to create employment. Yet in a global automotive economy dominated by a handful of giant multinational vehicle assemblers and large multinational component suppliers , how can a developing country promote its motor industry? In Malaysia, where a policy of efficient industrialization is also potentially in sharp conflict with its affirmative action program. This is why many of us have to ask how far Malaysia has succeeded in creating ‘policy space’ to foster its motor industry in the face of liberalization pressures to abandon traditional policy tool such as local content requirements and tariff protection.

If we examine Malaysia’s neighbors--- one country that comes to mind is Thailand. In Thailand, where major automotive multinationals were invited in and have established the industry as a regional export base. Malaysia , a smaller country, faces a more difficult task since it would need to export in order to keep production costs low. In Malaysia, as in virtually all developing countries that have attempted to develop an automotive industry – motor vehicle assembly was launched under import substitution policies that protected the home market from import competition, and this legacy continues to affect the industry.

In fact, Malaysia already had a number of foreign assembly plants established by the early 1980s when it started a second stage of import substitution, under which the national car company Proton was established. In the 1980s and 1990s the Malaysian automotive industry as a whole received substantial protection. In fact their import tariffs were one of the highest in the ASEAN region. For example, Malaysia imposed 140 % to 300% import tariffs on CBU PVs, which was higher than Thailand’s --- which levied 80% tariffs.


Reference:

Segawa, N., Natsuda, K., & Thoburn, J. (2014). Affirmative Action and Economic Liberalisation: The Dilemmas of the Malaysian Automotive Industry. Asian Studies Review, 38(3), 422. doi:10.1080/10357823.2014.928847

@macnurv is right.. I doubt you have ever seen a company in Japan which only exists for patronage or just for the sake of it.

Such companies(PSUs) are prevalent in India!! & perhaps even in malaysia
They only exist to satisfy the worker unions+to hand out extra posts of power to loyalists. Most of them make no profit+ are very inefficient

Innovation & creation in such companies is close to impossible & is generally discouraged in most cases


Great post @Darmashkian !

Permit me to also add that as pressures towards trade liberalization have increased, particularly in the form of the ASEAN Free Trade Area (AFTA), general tariff protection has been partially replaced by more indirect help in the form, for example, of differential excise taxes that indirectly help Proton (and Perodua). While foreign manufacturers in Malaysia are now exposed to import competition from sources within the AFTA and soon from Japan, still, Proton remains protected to some extent.

Pressure towards liberalization in the form of the WTO’s TRIMs requirement form the early 2000s has meant the replacement of explicit local content requirements by more roundabout measures. In this sense, Malaysia , like Thailand, has succeeded in carving some “policy space” so to say for itself to encourage its motor industry.

Yet, in regards to Proton, its problems are , from my opinion, based on its capacity utilization being too low. This is why the recent cooperation between Proton and Honda and now recently through Suzuki --- shows an emerging paradigm shift. This may signify Malaysia’s attempts to go it alone with a majority owned national car. This is a positive sign for Proton and as I have mentioned in my prior posts regarding Suzuki’s subsuming Proton as a necessary eventuality.
 
@macnurv is right.. I doubt you have ever seen a company in Japan which only exists for patronage or just for the sake of it.

Such companies(PSUs) are prevalent in India!! & perhaps even in malaysia
They only exist to satisfy the worker unions+to hand out extra posts of power to loyalists. Most of them make no profit+ are very inefficient

Innovation & creation in such companies is close to impossible & is generally discouraged in most cases

Valid point raised by you, it seems same is the scenario in Pakistan as well and the most glaring example of such behavior would be the national carrier of Pakistan, PIA. People are hired for the purpose of political patronage and as a result PIA from a world class airline reduced to butt of jokes in few decades.
Same is being done in Malaysia, Proton, MAS etc are being run as patronage rather than a system based on efficiency or to generate profits. MAS had to fire 20,000 of its employees and could only rehire 8,000 as a part of restructuring plan. MAS also operated several airports including KLIA which should be profitable but because of inflated workforce and no focus on quality service, eventually MAS failed. The loss of two planes within a single year did not do any favors for them as well.
The reason I gave example of MAS is to elaborate the mindset prevalent in Malaysian government and that is use of political patronage, which not only renders the company unprofitable but brings the standards low as well. But unlike airline industry, where there is stiff competition, Proton faces little to no competition because of lack of local manufacturer and as long as this protectionist policy continues, the consumers will pay the price.


Hi ,



You made a very good point about some of the inefficiencies in Malaysian automotive industry and the need to adopt more progressive policies. A motor industry has the potential to give many opportunities to local component suppliers, often small and medium sized enterprises and to create employment. Yet in a global automotive economy dominated by a handful of giant multinational vehicle assemblers and large multinational component suppliers , how can a developing country promote its motor industry? In Malaysia, where a policy of efficient industrialization is also potentially in sharp conflict with its affirmative action program. This is why many of us have to ask how far Malaysia has succeeded in creating ‘policy space’ to foster its motor industry in the face of liberalization pressures to abandon traditional policy tool such as local content requirements and tariff protection.

If we examine Malaysia’s neighbors--- one country that comes to mind is Thailand. In Thailand, where major automotive multinationals were invited in and have established the industry as a regional export base. Malaysia , a smaller country, faces a more difficult task since it would need to export in order to keep production costs low. In Malaysia, as in virtually all developing countries that have attempted to develop an automotive industry – motor vehicle assembly was launched under import substitution policies that protected the home market from import competition, and this legacy continues to affect the industry.

In fact, Malaysia already had a number of foreign assembly plants established by the early 1980s when it started a second stage of import substitution, under which the national car company Proton was established. In the 1980s and 1990s the Malaysian automotive industry as a whole received substantial protection. In fact their import tariffs were one of the highest in the ASEAN region. For example, Malaysia imposed 140 % to 300% import tariffs on CBU PVs, which was higher than Thailand’s --- which levied 80% tariffs.


Reference:

Segawa, N., Natsuda, K., & Thoburn, J. (2014). Affirmative Action and Economic Liberalisation: The Dilemmas of the Malaysian Automotive Industry. Asian Studies Review, 38(3), 422. doi:10.1080/10357823.2014.928847




Great post @Darmashkian !

Permit me to also add that as pressures towards trade liberalization have increased, particularly in the form of the ASEAN Free Trade Area (AFTA), general tariff protection has been partially replaced by more indirect help in the form, for example, of differential excise taxes that indirectly help Proton (and Perodua). While foreign manufacturers in Malaysia are now exposed to import competition from sources within the AFTA and soon from Japan, still, Proton remains protected to some extent.

Pressure towards liberalization in the form of the WTO’s TRIMs requirement form the early 2000s has meant the replacement of explicit local content requirements by more roundabout measures. In this sense, Malaysia , like Thailand, has succeeded in carving some “policy space” so to say for itself to encourage its motor industry.

Yet, in regards to Proton, its problems are , from my opinion, based on its capacity utilization being too low. This is why the recent cooperation between Proton and Honda and now recently through Suzuki --- shows an emerging paradigm shift. This may signify Malaysia’s attempts to go it alone with a majority owned national car. This is a positive sign for Proton and as I have mentioned in my prior posts regarding Suzuki’s subsuming Proton as a necessary eventuality.

Very detailed post, and you raised some very good points. I can add few things from a consumer POV. Affirmative action is one of the most divisive policies of Malaysian government, this policy have created a new class of Malay elite which have acquired a privileged position with very little work and effort. It is that very same class that is still reaping the rewards of this policy and over time, they had become tremendously powerful and will do anything within their power to keep the status quo. The previous owner of Proton implemented a policy of cutting local component suppliers to maximize the profits, that was a disaster. It was the Malaysian consumer who paid the price, the quality went from bad to worse not to mention the local suppliers also lost out heavily. By the way majority of those business will be Malay owned, again thanks to affirmative action.

The other important point you raised is the import tariff and taxation mechanism, lets just say it is again designed to fleece the Malaysian public of their hard earned money. The same car in Thailand costs a fraction of what it costs in Malaysia thanks to such policy further rendering the middle class unable to buy better quality build cars. It is also a source of revenue for both Proton and Malaysian government, and I don't see it changing anytime soon. For those who can afford their is an abundance of choices, premium european premium brands such as BMW, Mercedes, Audi (all its subsidiaries), Volvo, Bentley, Maserati, Ferrari etc are available but costs hefty amounts. Japanese automakers such as Honda, Toyota, Nissan and Mazda have products that are still within the reach of Malaysian consumer. Japanese cars are way superior compared to those produce locally by both Proton and Perodua, yet the price difference is getting smaller and smaller.
The Koreans are also making in grounds into Malaysian market but at a far slower pace, reliability is not an issue as it was few years ago.

I don't have any information about free trade agreements implementation plans in Malaysia but i doubt the government will reduce taxes or give relief to public, I would encourage you not to underestimate the protectionist mindset of these people.

Moral of the story is, for as long as Malaysian government will prioritize race over ability and talent, there will be no growth and development beyond a certain threshold and it seems that threshold have been reached.

I know we are talking about cars but same is the case for bikes, anything above 150CC, the same ridiculous tariff comes into action. For example the same KTM Duke 390 would cost twice less in India as compared to Malaysia. The 125 trim is not even imported as the profit might be too low for the importers.
 
Very detailed post, and you raised some very good points. I can add few things from a consumer POV. Affirmative action is one of the most divisive policies of Malaysian government, this policy have created a new class of Malay elite which have acquired a privileged position with very little work and effort. It is that very same class that is still reaping the rewards of this policy and over time, they had become tremendously powerful and will do anything within their power to keep the status quo. The previous owner of Proton implemented a policy of cutting local component suppliers to maximize the profits, that was a disaster. It was the Malaysian consumer who paid the price, the quality went from bad to worse not to mention the local suppliers also lost out heavily. By the way majority of those business will be Malay owned, again thanks to affirmative action.

The other important point you raised is the import tariff and taxation mechanism, lets just say it is again designed to fleece the Malaysian public of their hard earned money. The same car in Thailand costs a fraction of what it costs in Malaysia thanks to such policy further rendering the middle class unable to buy better quality build cars. It is also a source of revenue for both Proton and Malaysian government, and I don't see it changing anytime soon. For those who can afford their is an abundance of choices, premium european premium brands such as BMW, Mercedes, Audi (all its subsidiaries), Volvo, Bentley, Maserati, Ferrari etc are available but costs hefty amounts. Japanese automakers such as Honda, Toyota, Nissan and Mazda have products that are still within the reach of Malaysian consumer. Japanese cars are way superior compared to those produce locally by both Proton and Perodua, yet the price difference is getting smaller and smaller.
The Koreans are also making in grounds into Malaysian market but at a far slower pace, reliability is not an issue as it was few years ago.

I don't have any information about free trade agreements implementation plans in Malaysia but i doubt the government will reduce taxes or give relief to public, I would encourage you not to underestimate the protectionist mindset of these people.

Moral of the story is, for as long as Malaysian government will prioritize race over ability and talent, there will be no growth and development beyond a certain threshold and it seems that threshold have been reached.

I know we are talking about cars but same is the case for bikes, anything above 150CC, the same ridiculous tariff comes into action. For example the same KTM Duke 390 would cost twice less in India as compared to Malaysia. The 125 trim is not even imported as the profit might be too low for the importers.


Hi my friend @macnurv ,


Really loved reading your very detailed post and the topic of affirmative action program in Malaysia and its effects on social division and creation of an new power class was also quite enlightening. Agreed.

In regards to Malaysia’s protectionism, I’m glad that it is slowly changing. In fact Malaysia has experienced an overall decline in non tariff trade costs over the past fifteen years. Among ASEAN-5, Malaysia is among the lowest in its average freight and insurance charges (that’s a new development, btw). While there has been an overall decline in costs over time, further examination shows that there is still room for further reduction.

While the government in Kuala Lumpur has provided incentives for economic reform, improving the economic and political climate of the country is of paramount importance in order to attract more and more people to invest and to build businesses in the country. Clearly the recent liberalization in trade policies have been a positive sign.

There are , indeed, challenges for Malaysia, but so are there also ample opportunities.





Regards,
@Nihonjin1051
 
Hi my friend @macnurv ,


Really loved reading your very detailed post and the topic of affirmative action program in Malaysia and its effects on social division and creation of an new power class was also quite enlightening. Agreed.

In regards to Malaysia’s protectionism, I’m glad that it is slowly changing. In fact Malaysia has experienced an overall decline in non tariff trade costs over the past fifteen years. Among ASEAN-5, Malaysia is among the lowest in its average freight and insurance charges (that’s a new development, btw). While there has been an overall decline in costs over time, further examination shows that there is still room for further reduction.

While the government in Kuala Lumpur has provided incentives for economic reform, improving the economic and political climate of the country is of paramount importance in order to attract more and more people to invest and to build businesses in the country. Clearly the recent liberalization in trade policies have been a positive sign.

There are , indeed, challenges for Malaysia, but so are there also ample opportunities.





Regards,
@Nihonjin1051

Thanks @Nihonjin1051

Your knowledge on all matters related to SE Asia is highly appreciated and regarded.
 
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