Wednesday, August 31, 2005

The Future of Proton

The Future of Proton.

Much has been written about Proton in Letter to Editor lately. It seems that the car industry as a whole is at a crossroad. Falling sales, thin margin and increased competition from Korean carmakers are the problem of the year for Proton. A few big car companies are posting huge losses (DaimlerChrysler, General Motors, Ford and Mitsubishi) and some has closed its business in the past few years. The emergence of Korean carmaker as global leaders in price and profitability is anything but surprising.

The key to their success goes back to the time of economic slowdown in 1997, as well as the natural endowment the Korean people have; educated, high savings rate and good industrial facilities. During the economic slowdown in 1997, the Korean let their currency slide and bankrupt companies closed its doors. In economic jargon this is called cleaning the slate. Companies posted huge losses, but they moved on, with the benefit of huge tax losses carried forward. Financial restructuring, debt equity swap and discounted bond sales were common during those times. The remaining companies that survived the economic crisis have the benefit of more opportunities, acquired assets at fire-sale prices and with the enhanced benefit of Korea’s high savings rate, could borrow capital at low interest rate and invest in advanced production line. The result is lowest production cost overall - efficient production. Do remember that back in 1997, a lot of investment funds buy stocks in Korea with a view of higher than average returns. Even GM bought a stake in Daewoo.

Now back to Proton, The key to Proton’s future success is in its ability to adapt to changing business environment. With the oil price at its highest level in decades, sooner or later public opinion of car as a mean of transportation would change. Most car companies have already change their marketing strategies in the face of competition from Korea by giving deep discount, attractive financing and forming alliances and merging with another.
GM offered employee discount price to all its customers in North America. Some European and Korean carmakers offered interest free financing in some countries. While Daimler, BMW, Audi and Volkswagen found merger partners to increase market share and expand production facilities. All these efforts are just to retain or increase market share. Why is this so? Simple, consumer prefers global brand when buying products/goods that need technical back up, and they demand reliability. Automobile market is moving towards oligopoly. Take CPU market for example, would you buy any other brand beside Intel and AMD? What other brand you might ask.
I like the idea for Proton-Volkswagen tie-up. Basically Volkswagen found a new market in ASEAN with a sizeable market share in exchange for continuing profitability for Proton. Proton would gain access to Volkswagen marketing network worldwide. This would ensure Proton’s survival in the near future. The other choice is to continue with high tariff for foreign cars to protect Proton and other local carmakers. Anyone who visited India in the 80’s and early 90’s would tell you that Indian cars were from the 50’s.
But if that is not palatable to Proton board and shareholders; after all, any tie-up like that would have to be approved by majority of shareholders in an EGM, I can offer a marketing idea that might work for Proton.
If we visit Dell website, we could buy computer online and tailor it to our own specification; bigger monitor, smaller hard drive, more memory and add a few accessories. What if we can buy a car that way?
Proton could offer 3-4 models based on one platform, then offer these cars for sale online and let buyers choose their specifications; paint colour, sedan or station wagon, manual or power windows etc. Then buyers can add up the prices or they can buy the recommended bundle and choose to pay cash or arrange financing that suit them. Don’t forget to tell the buyers their expected delivery date, to be delivered to wherever the buyers want to, by Poslaju. (I think Proton could appoint logistics companies to do delivery)
Without doubt, the entire Proton supply chain management has to be managed online. Savings from low inventory and cutting out middlemen could be passed on to buyers in the form of lower prices.
Cars is fast becoming commodity like, one car is not much different than another. These days when people buy car, they expect to use it for a set number of years and then get rid of it.
How I wish I could buy my Mitsubishi brake light lenses just like I bought my computer component, off the internet.

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