Last gasp of the minnow

This week's Economist ran a story on Proton, Malaysia's car manufacturing national "champion". Proton is apparently in talks with various parties to launch an "Islamic" car for sale to Muslims worldwide. This is a silly waste of money, for the following reasons.

1. Proton is not a viable company.

With annual sales of 130,000 vehicles, uncompetitive in export markets and in its home market, Proton is losing money. According to the Economist, it lost RM591m in the year to March. This is, sadly, both a huge amount and a tiny amount. It's a huge amount for a Malaysian government-supported company, as it's ultimately underwritten with Malaysian taxpayers' money (although this hasn't happened yet). It's also a tiny amount in international terms, as it is barely 90m pounds sterling, serving to highlight how small Proton is.

Carmakers need to marry volume, with the attendant economies of scale, to good design, which brings a premium in sale price, in order to make a profit. Good design often necessitates lots of niche products though, which is one reason why the US carmakers are struggling. General Motors sells 4.1 million vehicles in the US alone, and it can barely make an operating profit. Proton has neither volume nor good design (nor indeed technical knowhow - the basic Proton model is based on a combination of Korean and Japanese technology, which hasn't been improved much in the last 30 years).

2. Barriers to entry in its new niche are low.

According to the Economist, the top-of-the-range Islamic car will contain a direction finder for Mecca, a compartment for a headscarf and a special box for the Qur'an. I have no problem in believing that these are the extent of the innovations, as it's hard to innovate in the automotive industry, and Proton simply does not have the resources, financially or in brainpower, to do the difficult things. I also don't believe that these innovations are in any way hard to copy. The Chinese carmakers will be duplicating them before the second week of production is out, and will undercut Proton on price.

Assuming, of course, that Muslims want to buy an Islamic car with indifferent performance that allows them to store the occasional headscarf. If Proton is relying on Muslim solidarity to make them money, then they shouldn't be selling to Turkey (a major Muslim market that Proton has identified as key), as I find it hard to believe that hard-nosed, cosmopolitan Turks will accept an Islamic car made from decades old Japanese and Korean technology.

Will sales in Pakistan and Indonesia help? Probably not - India has its own automotive firms that are already in Pakistan, and Indonesia already has its own automotive industry (that could easily create an Islamic car).

3. Proton's partner wants know-how, not a partner.

Proton apparently intends to partner with Iran, who came up with the idea but has even less technological know-how. The Iranians are likely to be as nationalist about this as they are about their oil and gas industry, and their nuclear designs. After all, they are the ones with the big internal market. Proton will probably open a factory or two in Iran, make a few cars, and be swiftly dumped for a more technologically advanced partner (or sucker, as the case may be).


Proton has already burned through enough cash and subsidies in the 30 or so years it has been in existence. It was nothing more than one of Mahathir Mohamed's vanity projects, and has even less use after he has stepped down. The company should have been sold to a foreign buyer long ago, or simply shut down, but this will not happen. All too often in Malaysia, ego trumps sense, in a country that can ill afford such an overinflated self-image.