Business

Friday April 10, 2009

Proton MD: Time to consolidate car industry

By JAGDEV SINGH SIDHU


Syed Zainal: It will prepare motor industry for future challenges

KUALA LUMPUR: Proton Holdings Bhd’s top executive is calling for the national car industry to consolidate now to prepare for the challenges once the global economy recovers.

Managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir said the diverse structure of the industry, with production centres and vendors strewn throughout the country, had led to inefficiencies and higher costs.

That, coupled with excess production capacity, makes it tough for the country to compete effectively against global players that are already undergoing consolidation and cost cutting during these tough times.

“I am concerned about what is happening with the auto business globally. People are in a position where they have excess capacity and they are already pitching for consolidation and restructuring,’’ Syed Zainal told StarBiz.

Datuk Syed Zainal Abidin Syed Mohamed Tahir ... diverse structure of the industry has led to inefficiensies and higher costs.

“The time has come for Malaysia to see what can be done for the automotive industry. We need to address the duplication of resources,” he said.

The idea of a consolidation among the national car players first emerged during the Asian financial crisis. At that time, the idea was mooted for Proton and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to merge but the stumbling block was seen to be the foreign partners. Proton’s partner then was Mitsubishi Motors and Perodua’s was, and still is, Daihatsu Motor.

Since then, the subject of the merger surfaced periodically but it was more of floating the idea rather than taking concrete steps to get the two largest players to merge.

This time around, the suggestion of a consolidation takes on a different twist and Proton and Perodua are not the only companies with national car status. Inokom and Naza have the status for a limited range of vehicles.

Although it may be difficult to get all the companies with national car status to consolidate, getting Proton and Perodua to consolidate would be the most logical step in Syed Zainal’s mind to pursue the national car agenda.

Which company will lead the consolidation would also be down to fulfilling the agenda and responsibility of the national car company, he suggested.

Syed Zainal feels that there should be explicit support from the Government for the national car company and, given the landscape today, support can only be given to one company.

And with savings from any potential merger pegged at a minimum 10% of cost, that benefit would help make cars from Malaysia a lot more competitive in the international arena.

Apart from the manufacturers themselves, the location of the vendors too needed to be streamlined to a single location, Syed Zainal said.

Currently, vendors are found throughout the country where the manufacturing and assembly areas are located, unlike in Thailand where the bulk of them are located in Rayong.

The scattered centres of production also does not help suppliers, who have to incur additional costs in shipping parts and components from their factories to all those centres in the country.

“This is stretching the eco-system,” said Syed Zainal. And that makes suppliers and vendors a little more exposed to financial failure if the returns on investment in a new factory are way below expectations.

 
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