Indonesia Ties-Up with Malaysia’s Proton Car

Indonesian President Joko “Jokowi” Widodo’s decision to appoint the Malaysian carmaker Proton as a possible vehicle for an Indonesian national car ties the country to an industrial concern that has handicapped the Malaysian economy since it was dreamed up by then Prime Minister Mahathir Mohamad in the 1980s.

Jokowi, who during his presidential campaign expressed the need to build a national car, has given the contract to study setting up the operation to AM Hendropriyono, a close associate of Indonesia Democratic Party of Struggle Chairwoman Megawati Sukarnoputri, who backed Jokowi in his presidential campaign. Given his dismal human rights record and powerful, if secretive, ties to the elite, Hendropriyono might also be described as a kind of Indonesian Rasputin. His company, Adiperkasa Citra Lestari, seems to exist only on paper, if that. It is not even registered with the Indonesia’s Industry Ministry and its history and line of business are unknown.

Butcher of Lampung

The agreement is seen as the latest concession to Megawati, dismaying the pro-Jokowi reformers who energized his campaign on the belief that he would clean up one of the most corrupt governments in Southeast Asia. Jokowi’s appointment of General Budi Gunawan, Megawati’s adjutant when she was president between 2001 and 2004, to lead the National Police has come under particular fire. Other Megawati cronies have been named to the cabinet and other top positions as well. Known as Budi the Bagman, the prospective national police chief whose appointment is now on hold was charged with bribery by the Corruption Eradication Commission (KPK) almost immediately after Jokowi named him. The squabble between the police and the KPK, as the commission is known, has reached crisis proportions with the police using suspicious prosecutions to try and disable the corruption fighters.

Nor is Hendropriyono much better. As national intelligence chief, he is alleged to have been involved in the murder of human rights activist Munir Said Thalib, who died after eating poisoned food on a Garuda Indonesia flight to the Netherlands in September 2004. He is also held responsible for a 1989 tragedy when he commanded army troops that attacked a separatist group in Sumatra, leaving at least 27 dead and 78 missing. Some reports claim the death toll reached hundreds. For this, he earned the name “The Butcher of Lampung.” Hendropriyono was summoned for questioning by a presidential fact-finding team on Munir’s demise, but he refused to comply with the investigation although he later admitted to a journalist that he bore command responsibility for Munir’s death.

On a state trip last week to Malaysia, Jokowi visited the Proton factory, where he watched the signing of an agreement between the automaker, formally known as Perusahaan Otomobil Nasional Sdn Bhd, and Adiperkasa Citra Lestari to establish a joint venture to study the feasibility of producing an Indonesian national car.

Mahathir was present at the signing. Indeed, without his continued insistence the Proton probably would have died long ago, or would never have been born. Economic advisors attempted to no avail to talk him out of the government-owned project at the outset. Former Prime Minister Abdullah Ahmad Badawi, who followed Mahathir into office, toyed with killing the car, which has lost billions of dollars and created massive opportunity costs, but Mahathir’s stewardship of the national car kept it alive. He remains chairman of the company and undoubtedly sees the Indonesian market as a major chance to turn a long-running debacle into a success. Never a success

The original Proton Saga, assembled in a government factory, was a rebadged Mitsubishi Lancer Fiore. From the time the first car appeared through the mid-2000s, they were all rebadged Mitsubishis, although original designs came into being after that. From the start, as many countries that produced national cars learned to their sorrow, it suffered by being unable to attain economies of scale.

In the first 23 years of its existence, Proton sold only 1.5 million cars but was kept alive by enormous taxes on imports, either brought in completely built up or as kits. Even despite the tariffs on other cars, the joint share of the market by Proton and its sister government-owned car project, Perodua, had fallen below 50 percent by January 2015. While Proton says it operates in 26 countries, its share is minuscule in all of them. In Indonesia it has only about 1 percent of the market, if that.

Because of its restrictive investment policies, the car also cost Malaysia the chance to compete industrially with Thailand, with no such restrictions, and which developed into Southeast Asia’s premier auto manufacturing hub, a title it has held through its own economic and political troubles. The car industry is now Thailand’s third-largest, making up 12 percent of GDP and employing more than 300,000 people.

Remember the Timor?

The lack of economies of scale and unavailability of widespread international development expertise meant that after Proton and Perodua left the embrace of Mitsubishi, the two national cars have never really had the engineering prowess to build a very exciting car. Although Proton controlled more than half the market in 2001, its current 17 percent share is less than a third of what it once enjoyed. While the cheaper Perodua’s performance has been more consistent, it remains at 29 percent. As the market liberalizes under orders of inter-Asean trade agreements, the share for the national car continues to dip.

It isn’t the first time that Indonesia has experimented with a national car. In the late 1990s, at the end of the reign of Suharto, the late strongman allowed his son, Hutomo Mandala Putra, better known as Tommy Suharto, to rebadge Kia cars from South Korea as Indonesian-assembled Timor vehicles. The venture was never successful and died when Suharto fell in the wake of the 1997-1998 Asian Financial Crisis. During rioting against Suharto, Timor cars were often torched on the streets of Jakarta. As critics have pointed out, rather than developing a true Indonesian national car, Proton will probably just rebadge some of its current stable with an Indonesian name.

In early 2012, Jokowi made his name on the national stage by championing the Esemka car, assembled with parts imported from China by students at a vocational school in Solo, where he was then mayor. While critics said that was a publicity stunt, he appears to have been serious. But why he picked Hendrioyono’s company, which has no connection to the auto industry, is of growing concern as his early promise as a reformer is steadily diminishing.