Proton (automobile) - Charges of Protectionism

Charges of Protectionism

When the first Proton appeared on Malaysian roads in 1985, the Proton Saga soon received the nickname 'Potong Harga', meaning 'cut-price', The car was at least 20% cheaper than non-Malaysian makes in the same 1.3 to 1.5 litre class. With both the low price and a dash of national pride working for it, Proton got a rapid hold on the market. By 1988 Proton, with a model lineup of one, had overtaken all other makes and models and grabbed 73% of the Malaysian passenger car market.

In 1983, when the 'national car' was planned, Malaysia had an annual new car market of about 90,000 units, and the market was growing annually by 20%. Proton plant was designed to produce 80,000 units a year and could be geared up to 120,000 units. But in Proton's first full year of production (1986), total car sales took a severe dip to 47,000 and next year, due to a worsening economic situation, just 35,000. Only in 1988 did the market begin a recovery to 54,000 units, by now most of them Protons. Since then, the market has grown steadily to a 2005 peak of 417,000 cars

Government policy has kept the Proton cheaper than other makes by the simple strategy of taxing the competition, while giving Proton exemptions or rebates from these same taxes. Duties on packages of parts for assembly into complete cars in Malaysia is said to average about 30%. Proton is exempted from most of these

On 1 January 2008, the postponed-several-times full implementation of an ASEAN Free Trade Agreement that Malaysia originally signed on to in January 1992, was to finally have come into effect. The agreement would effectively bar practices that discriminate against goods (including vehicles) that are considered “Made in ASEAN” by the use of Tariff and/or Non-Tariff Barriers. This would practically eliminate most of the price advantage, achieved by way of the 50% rebate Proton (and other “Malaysian-made” cars) enjoy on a hefty (75 to 105%) engine-capacity-related Excise Duty applied to new cars sold in Malaysia.

This rebate is largely responsible for non-Malaysia ASEAN-made cars costing between 30 and 60% more than an equivalent Malaysian-made vehicle. With a “level playing field”, within the confines of CEPT (which till end 2009 allows a maximum 5% import duty, reducing to zero in 2010) using existing FOB prices, an ASEAN (Thai-made) Honda or Toyota would sell for within 10% of a comparable Proton, and would probably result in the devastation of Proton's market share and the company. As it appears that this would be an unacceptable consequence to the Malaysian government, for the time being, local car manufacturers will be allowed to continue receiving the excise duty rebate, with the Malaysian Government picking up the tab for probable penalties it will have to pay to ASEAN members for violating established free-trade regulations.

As 2008 progressed, it became apparent that more and more global manufacturers reasoned that the level playing field stipulated by CEPT will continue to be ignored by the Malaysian government for as long as possible. This temporarily derailed these manufacturers' previous plans to use Thailand (principally) as their ASEAN manufacturing hub, and forced them to reintroduce Malaysian-assembly of some models from CKD. This move allowed these foreign marques to benefit from better tariff structures applied to such vehicles, in an effort to remain competitive (in the non-National car segment), and to narrow the price difference between their models and equivalent (Excise Duty rebated) Malaysian-made cars.

The very latest update to the Malaysian Automotive Policy framework (October 2009) failed to mention any change in this discriminatory rebate policy, thereby reinforcing the suspicion that the Government will not abide by stipulated "level playing field" requirements for the foreseeable future. It should be noted that the main “solution” being pushed by the Malaysian Government to maintain the pricing advantage of locally made cars, by providing grants and subsidies (to counteract any potential removal of the excise Duty rebate) would also be deemed to be non-compliant with the Trade Agreement, contravening Non-tariff barriers to trade requirements.

The lack of direct competition at Proton models' price points (in Malaysia) has also allowed Proton, for many years, to continue selling very outdated designs, generally with scant regards to providing basic safety equipment such as airbags and anti-lock braking in domestic models. Additionally, J.D. Power survey results have consistently shown that Protons have poorer rankings in initial quality than the available competition