Mahathir and the New National Car

In 1984, a young researcher at a prestigious Malaysian thinktank wrote an exhaustive review of then-Prime Minister Mahathir Mohamad’s plan to partner with Mitsubishi Motors of Japan to produce a so-called national car. The sum and substance of the researcher’s report was: Don’t do it. It would be an economic disaster that would also limit consumer choice.

The report was leaked to a reporter for the Asian Wall Street Journal, then the New York-based WSJ’s Asian edition, which ran the story. The think tank’s chief quickly shot it down, saying it was only a draft, and never mind. Fast forward a couple of decades, and learn just how prophetic the researcher’s warning was.

Mahathir went ahead and midwifed his proposal, of course, which became Perusahaan Otomobil Nasional (Proton). In the ensuing three-plus decades of its existence, the car, part of Mahathir’s move to move the country away from its resource-based economy to heavy industrialization, can only be described as a disaster.

Eventually in June 2017 – allegedly, partly to find funds to bail out the flailing 1Malaysia Development Bhd., which was enveloped in scandal – Prime Minister Najib Razak’s government would sell 49.9 percent of Proton to China’s Zejiang Geely Holding Group and effectively cede control over it to the automaker Geely.

But for everybody breathing a sigh of relief at having managed to get rid of the albatross hanging around Malaysia’s neck, the idea of a national car is back, along with Mahathir, who led the take-no-prisoners campaign to get rid of the corruption-plagued Najib in the country’s May 9 general election.

The 93-year-old Mahathir appears to want to bring back the country to where it was when he left office in 2003 after the first 23 year stint as premier, also reviving a proposal to build Malaysia’s half of a bridge over the Singapore causeway that nobody wants. It has won the name “crooked bridge” because it would have to be built to connect to Singapore’s half of the causeway since the island republic has no plans to replace its half of the bridge.

Ominously, Mahathir, has been appointed chairman of the board of Khazanah Nasional Bhd., the government’s premier investment vehicle, or more likely has appointed himself. Appointed along with him are allies Mohamed Azmin Ali, Mohd Hassan Marican, Sukhdave Singh and Goh Ching Yin. It was Kazanah that would ultimately take control over Proton, raising fears that Mahathir’s second incarnation as premier will result in amassing the same kind of power that he amassed in the 1980s and 1990s.

Against the advice of virtually everybody, Mahathir has gone to Japan, possibly to seek a joint venture partner to build another car despite the failure of Proton, which in characteristic Mahathir fashion was blamed on everybody else. Entrepreneur Development Minister Mohd Redzuan Yusof announced last week that the government expects to launch what has been called “national car project 3.0” by 2020 in a move described as strategy to revitalize the national automotive industry.

But if past is inevitably prologue, Malaysia would do wise to heed the critics. Rafizi Ramli, the vice president of Parti Keadilan Rakyat, urged that the project be reconsidered, saying no such plan had ever been discussed in the governing Pakatan Harapan coalition. No attempt has been made to assess the cost, no decision has been taken which agency would assume responsibility, no move has been made to abolish swingeing excise taxes on cars.

The saga of the Proton Saga – the name given the first national car – is contained in “Malaysian Maverick,” the highly regarded biography of Mahathir written by the late Wall Street Journal editor and columnist Barry Wain, who pointed out that for most of its existence, Proton lost RM35,000 (US$8,587 at current exchange rates) on every car sold.

Proton’s dubious success, Wain wrote, “came at a heavy cost to Malaysian consumers: taxes ranging from 140 percent to 300 percent on imported vehicles, and up to 40 percent on cars locally assembled from imported kits.”

Proton cost Malaysia’s taxpayers billions in direct subsidies and untold billions more in opportunity costs as those who didn’t want a rebadged Mitsubishi Lancer were forced to pay enormous excise taxes on foreign-made cars. Thousands went ahead and bought Toyotas, Hondas and Nissans anyway, paying the extra freight. They also bought even more-expensive Mercedes-Benzes and Jaguars anyway despite the extra cost.

Already dated by the time Malaysia started importing the Lancer kits, the car was lackluster at best. Given Malaysia’s population at that point of fewer than 30 million, it was impossible to gear up to beat the economies of scale enjoyed by Toyota, Honda, Nissan and other manufacturers, who turned out millions of cars every year in their home bases and satellite plants. Attempts to sell Protons overseas failed. Cars sold in China and England, for instance, had no heaters because they weren’t necessary in Malaysia. In order to sell the car in the UK, 400 technical modifications had to be made. In the end, exports accounted for only about 10 percent of sales.

Worse, as Wain wrote, the country’s thriving assembly industry, which employed thousands, was decimated by the favoritism shown to Proton. By contrast, Thailand welcomed the entry of foreign firms to assemble cars there, ultimately becoming the export hub of Southeast Asia and ending up what was called the “Detroit of the East.”

As Proton attempted to increase local content, with Malaysian engineers and designers producing more and more of the components of the cars, they fell even further behind, unable to compete with the technical expertise of the Japanese, Koreans and other carmakers.

In the end, there was little to show for Proton other than the Malaysian Islamic hood ornament, a symbol of pride. Mitsubishi “bailed out of Proton in 2004, ending a two-decade partnership that proved extremely profitable for the Japanese group” at the same time Malaysia was left “with dozens of uncompetitive local auto parts makers and vendors.”

Now Mahathir wants to do it again. He may get his way. But the national car encapsulates a more worrisome concern for the country, and that is that the ideas that failed – besides Proton but including a long string of grandiose projects -- cost the exchequer as much as RM100 billion in mismanagement and corruption, according to Wain’s book. Mahathir during the campaign that ousted the massively corrupt Najib Razak claimed he was now willing to share power and ideas. The car is a disturbing throwback, and raises the possibility that there are more such projects in the wings. For those who read Wain’s 2009 book, revised and updated in 2012, it might pay to go back and reread it.