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Friday, July 21, 2006

Would you buy Toyota Camry, Honda Accord or Proton Chancellor?

After I have received first and second email from my reader. On Monday, I received a third email from another reader regarding automobile industry excerpt as follow:

From: saam <>
Date: Jul 17, 2006 8:42 AM
Subject: competitive of proton
Hi, I have read about your blog. I want to know more about proton. Like what kind of competitive is proton facing now? Like if you are a buyer, would u prefer to buy proton car. Like would u buy Proton Chancellor? As the price is almost the same with the Toyota Camry and Honda Accord. In what aspects you will take into considerations? Recently I am doing a research about Proton Company. So I would like to gather more information about Proton. Thanks.

First, I like to answer a question from Colin on whether I would buy Proton with the share price dropped so low by now?

What I can said is even the most conservative successful investor like Warren Buffet would do turnaround investment where he would try to invest in company in nearly bankrupt but going to turnaround. Warren Buffet invested in American Express, a credit card company when the company shares price drop to it bottom.

However, Bottom Fish is a risky investment as it is difficult to know where is the bottom. Timing is very important. For me, I do not have plan to buy Proton in near future as I do not know the new CEO well. I feel investment in company equivalent to investment in a company CEO. If government let Idris Jala to head Proton rather then MAS. I might be consider as he has the track record of turnaround a company.

On whether I would buy Proton, Toyota or Honda. I think I would buy South Korea brand if I want to own a car. Either Hyundai or Kia. My first car was Proton Saga. My second car, Proton Wira was provided by my company. I never own any car since my company provided a motor vehicle to me. The point is, I have give enough support to Proton.

Japan has move a lot of factory from Malaysia to China. I feel this trend unlikely to reverse in near future. Thus, Why support Japanese, as they contribute less and less to out country. I feel Asia depend too much on Japan and their Prime Minister frequently insult China, Chinese and Asean. I feel we need to have another balancing power. I would buy South Korea brand like Samsung rather than Sony. Hyundai rather then Toyota. I watch Korea movie/drama rather than Japan movie/drama.

Another reason is security. Malaysia crime rate and car theft was high. If you buy a popular brand like Proton, Toyota and Honda. You are risk of being theft but if you buy a less popular brand like Hyundai or Kia. Chances are you are less likely to be target by car thieve.

Of course, if you want to do research. You cannot take my opinion as I always take a less popular alternative.

Link: BenQ,Siemens Vs Proton , Mitsubishi
Link: Automobile industries in new economy



Monday, July 17, 2006

Proton, nurture Malaysia's brand or bumiputra entrepreneur

Proton, initially founded by the government, has become one of the leading brand in Malaysia at one point of time. If you ask foreigner which brand they can think of like Sony and Toyota with Japan, Samsung with South Korea. People will think of MAS and Proton as a brand they can remember about Malaysia. Especially at a time when Proton was doing well in UK. However, Sales of Proton in UK has deteriorated.

After some time, government shift it policy to nurture bumiputra entrepreneur. Proton, and its holding company fall in the hand of late Tan Sri Yahaya Ahmad. However, sudden demise of Tan Sri Yahaya Ahmad cause government effort back to square one. Beside, DRB-Hicom group lead by late Tan Sri Yahaya Ahmad has over gear themselves and over diversified into too many area including transport(IntraKota), Banking and Finance etc. When Asian financial crisis hit the country. The company has to dispose off IntraKota and Proton back to government.

AP policy, which aim at nurture bumiputra entrepreneur successfully nurture another automobile entrepreneur.....NAZA group's Tan Sri S.M. Nasimuddin Amin. Tan Sri S.M. Nasimuddin Amin, unlike three other AP King, has his own company NAZA and has make his company into a large business entity.

After sudden demise of late Tan Sri Yahaya Ahmad. There was no visible bumiputra automobile entrepreneur in Malaysia until NAZA was granted national car status.

However, when government has two goal.....National car brand and nurture bumiputra automobile entrepreneur. When Proton was head by late Tan Sri Yahaya Ahmad where two goal was heading in same direction and lead by same person. It still look okay as there is goal congruence. However, when Proton, a Government Link Company (GLC) head by Executive reported to government and another national car NAZA head by a bumiputra entrepreneur. The two goal was in conflict that lead to conflict between present Prime Minister and Ex-Prime Minister.


The solution should match the two goal together or what we said "Goal Congruence" in management theory. That is to let bumiputra entrepreneur to lead Proton rather than Proton remain as GLC. When entrepreneur spend their own money invest in a company. They have to try their best to run the company. If not, they will lose all their own money. Of course, the government should not bail out the company when the company fail, nor should government enter into a deal with bumiputra entrepreneur like what disclose by Tajuddin Ramli. All buy and sell should done in a willing buyer willing seller free market basis.

When Tun Daim become Finance Minister. He, an ex-businessman nurture a lot of bumiputra entrepreneur. However, those bumiputra entrepreneur was not an entrepreneur or do not run their own business previously. They all are ex-employee of Peremba when Tun Daim head the company. They all are good employee with good qualification. However, if you look at other community like chinese. High qualification good employee might not be successful businessman. Successful businessman might be a school drop out like Bill Gates.

Present Second Finance Minister Tan Sri Nor Mohamed Yakcop policy was different from Tun Daim. As an ex-central banker, he like to run a large group of GLC and like to nurture young executive to run the company. It look like he emulate Singapore style where government lead the economic, rather then Hong Kong style where entrepreneur that lead the economic. However, unlike entrepreneur, the only solution for those Nor Mohamed's executive is price increase, which lead to present high inflation environment.

I feel Hong Kong style more suitable to nurture bumiputra entrepreneur. Further, GLC was classified as share control by non-bumiputra. Only when a company control by bumiputra enterpreneur, not GLC, was classified as share control by bumiputra. Thus, to place Proton under bumiputra entrepreneur would significantly increase bumiputra percentage to achieve New Economic Policy 30% target.

NAZA group's Tan Sri S.M. Nasimuddin Amin. Unlike ex-employee of Peremba, he is a successful entrepreneur himself. Beside not many bumiputra have financial muscle to swallow a large company like Proton. The important point is, he know in and out of automobile industry. This is one of the reason when Ford agree to joint venture with Hyundai's founder.


In AP controversial. Ex-Prime Minister Tun Dr Mahathir alleged International Trade Minister Rafidah deceiving him to award national car status to NAZA. It is not sure Tan Sri S.M. Nasimuddin Amin involve or not or only Rafidah was involved. However, Tun Dr Mahathir later attend a function organized by NAZA indicated that he was not involved.

Then, there is allegation of people under declared tax under AP system. It is not sure the allegation was against NAZA or other group. No prosecution was done eventually. Even if he involve in under declaration of tax. Government can purnish him by make him to acquire Proton stake at high price.

Petroleum money

Howard Huges(Aviator), successfully venture into aviation industry or airplane manufacturing because he has fund from profit of an oil and gas company he inheritance from his late father. South Korea LG group and Samsung group successfully enter into highly competitive electrical home appliances market because government award them petroleum refinery license. Another South Korea group SK Group also used profit from their oil and gas industry to venture into telecommunication industry.Like our Ananda Krishnan's Maxis.

Malaysia Petronas, has at one point of time hold share in Proton. However, Petronas has dispose off the shares eventually. Petronas still sponsor R&D of F1 engine. This means there is two team doing R&D in car engine, Petronas and Proton-Lotus. Should government rationalize the two unit?

I feel government should let bumiputra entrepreneur to run Proton. Government can award petroleum refinery license to that particular entrepreneur to finance him to compete in the industry.

Alternatively, if Proton remain a GLC. Government should let it place under Petronas. Or more specifically, both Petronas F1 engine R&D unit and Proton should inject into MISC, which has shipyard like Hyundai and Mitsubishi to form a Mitshibishi in Malaysia.

On Saturday, Edaran Automobile Nasional Dealers Association of Malaysia said there were 800,000 cars for sale in the market, 250,000 more than usual, making it difficult for national car dealers to remain in business.

Thus, Proton and government should act fast to find a solution. However, I opposed merger between Proton Edar and EON as this become monopoly and does not benefit to consumer.

Link: Automobile industries in new economy


Friday, July 14, 2006

US automobile Company Vs Japan automobile company

As Colin's email was not specific. I have send an email reply to him to ask him to be more specific. I received an email reply as follow:

Hello Peter,

Glad to receive your reply. I have been going through some of the papers regarding issues related to the car industry. One most important aspect i believe, is the government's priority to protect Proton even after the implementation of AFTA (ref:;also there are quite a number of vendors and sub-vendors of parts and accessories segment in Malaysia, most of them are "products" of Proton project. What do you think the government going to do with the Proton and the vendors? What can Proton possibly can do? Would you buy Proton with the share price dropped so low by now?

On the other note, Toyota seems to be able to capitalise on the tariff in AFTA, by constantly transporting parts and cars to and fro thailand and malaysia... maybe you can tell me more abt Toyota strategy in ASEAN countries?

Many thanks,

Please take your time...


I used to mentioned that China is potential US of Asia while Japan is German in Asia. However, in term of automobile industry. I have difficulties to compare and benchmark China's automobile industry with US automobile industry. Similarly, it is difficult to compare Japan automobile industry with German automobile industry.

However, I find it perfectly fit to compare Japan automobile industry with US automobile industry.

General Motor Vs Toyota

General Motor used to be the largest automobile company in US and the world. However, Toyota has overtake Ford to become the world second largest automobile company in the world and largest in Asia. Recently, Toyota has overtake General Motor in a few indicator. Toyota executive closely benchmark their company against General Motor and expected to overtake General Motor to become the world largest automobile company in 5 years.

However, unlike Honda, Toyota never reveal it Afta plan to public.

In Malaysia, to be expose to Toyota. UMW is the company to be invested. Being the largest automobile company in Asia. This is a company you unable to miss in your automobile portfolio. UMW gain substantially in 1993 super bull run. Thus, this is a counter you unable to miss if you believe stock market will begin it bull run again after recent world cup.

Ford Vs Honda

Ford and Honda, both company name after their founder's name in their respective country. Honda has a comprehensive Afta plan in Asia. Where it plant in Malacca, Malaysia, manufacture some parts to be use by their plant in Thailand, Indonesia and Philippine. Similarly some model of cars also solely manufacture in Malaysia and then export to other Asean country and vice-versa.

In Malaysia, it is not easy to have exposure in Honda. As 51% of the controlling stake of Honda Malaysia held by Japan's holding company with the balance 49 share between Oriental Holding and DRB-Hicom Group.

Daimler Chrysler Vs Nissan

Chrysler, the weakest automobile manufacturer in America has merged with German's Daimler to form Daimler Chryler. Similarly, Nissan, after a huge loss with prolong recession in Japan, has merged with French's Renault.

Nissan Malaysia is the only automobile brand fully control by non-bumiputra.

South Korea catching up

South Korea companies, after electronic giant Samsung's profit over take Japan's Sony. It automotive company Hyundai has benchmark against Japan's Toyota. It is yet to be see whether Hyundai able to over take it Japan counter part. In Malaysia, Hyundai brand has slowly gain popularity while another brand Hyundai acquired after Asia financial crisis Kia also gaining popularity in Malaysia.

Malaysian really like Kia Spectra as it look like German's BMW. While Korea's SSangyong is license from German's Mercedes.


China market was dominate by German's Volkswagen.

Positioning of Malaysia

Malaysia manufacturing industry is threaten by China's low cost factory. This is just like Europe country a decade ago which threaten by Japanese lower cost manufacturer. Thus, we need to learn from European they compete with Japanese low cost factory a decade ago.

I used to benchmark China against US, German against Japan, French against Korea.

The only European country that have automobile industries that available for Malaysia to benchmark is Italy, Sweden and Belgium.

Belgium is a headquarters of European Union as the country speak English, French, and German. German do not like to have EU meeting in French or UK. French also do not want to attend EU meeting in German or UK. But the three country willing to come to Belgium.Malaysia, have three major race which make it a perfect Belgium of Asia.

While Thailand is like Italy in term of travel industry where their capital are flood by water. However, in automobile industry. Thailand is like Belgium, without it own brand of automobile company. Malaysia, like Italy has it own brand Proton and Fiat respectively.

Malaysia's furniture industry also like Italy's furniture industry, both within top 10 furniture export country but Thailand was unlike Italy in this industry. Malaysia's furniture industry has a lot to learn from their counter part in Italy in term of design. Similarly, Malaysia's automobile industry can learn a lot from Italy's automobile company in term of design. Malaysia
automobile industry can collaborate with furniture industry to attract design expert from Italy after a lot of factory in Italy theaten by China low cost manufacturer.

While Proton has dispose off Italy's Augusta. Proton can always recruit it designer back when the company close down. Meanwhile, Proton Lotus can benchmark against Italy Ferrari while Proton can benchmark against Fiat robot manufacturing plant.

Another European country that have their own automobile brand is Swedish's Volvo. Volvo used to be more superior brand compare to Italy's Fiat. Volvo used to be considered a up market brand after German's Mercedes and BMW. Volvo, however, have strong trucks manufacturing capability. Thus, Malaysia can target trucks manufacturing rather then passenger car manufacturing. However, Malaysia neighbor, Thailand has strong trucks manufacturing capability despite do not have it own brand.

India TATA group also ha upper hand in branded trucks and bus manufacturing technology. Please note that up market brand like Mercedes also have strong trucks and bus manufacturing technology. Thus, Proton can enter trucks and bus manufacturing business to acquired technology in this area. Once it has acquired technology in trucks manufacturing. It can leveraged on this technology to enter up market manufacturing. Majority(90%) of the container haulage are Volvo brand. Malaysia has loss a lot of foreign currency to import the haulage trucks. Malaysia can save a lot foreign currency if Proton enter this market segment.

Most important thing, Malaysia should learn from Italy and Swedish company. How the company compete with low cost Japanese brand in 1980an to compete with South Korea and Chinese low cost brand.

Link: BenQ,Siemens Vs Proton , Mitsubishi

Update: Nissan to start talks with General Motors over possible alliance
Nissan, Renault and GM explore tie-up


Monday, July 10, 2006

Low margin of Malaysia auto parts business

I have received an email two weeks ago from one of my reader. Excerpt as follow:

From: Fong Pan <>> >
Date: Jun 21, 2006 3:20 PM> >
Subject: questions abt car industry> >
To:> >> >
Hello Peter,
I have been your blog reader and recently I have to do some writing on car industry in Malaysia. Can you please offer me some knowledge abt the car industry. And it seems like auto parts vendors and manufacturers have also absorbed huge chunk of profit.

Thank you,


I have been busy for the past two week and I only able to reply now. Sorry for late reply. Current issue of The Edge has make an analysis on local automobile industry. Get a copy for update.

Meanwhile, my next few post on this blog will comprises reply to Colin (Fong Pan) beginning with the issue I most familiar with.

Auto parts vendors consider low margin business in Malaysia. Despite Proton continue to claim it substantial cost are cause by it social obligation to give contract to Malaysia auto parts manufacturer.

At one point of time. Proton ex-CEO Tengku Mahalee said Malaysian chinese should support Proton and high import tax impose on imported cars to protect Proton market shares in Malaysia, if not, a lot of proton auto parts supplier would have to close down and a lot of it own by Malaysian chinese.

The statement by a CEO of a Government Link Company(GLC) indicate that most GLC's CEO view that Malaysian chinese are racist. They would support protectionist import tax if he mentioned that a lot of Proton supplier comprises chinese.

In actual fact. Chinese is not racist. While chinese will protest if Proton required all auto parts vendors must be 100% own by bumiputra as this is unfair and racist policy. Malaysian chinese would not care if they given a fair opportunity to supply to Proton but the vendor forces to close down due to it own uncompetitiveness. Malaysia chinese would not seek government protection base on the reason that some auto manufacturer comprises Malaysian chinese. It is the job of trade organisation like Auto Parts Manufacturer Association of Malaysia, if any but not the whole chinese community. CEO of GLC should spend time to increase their respective competitiveness of the company rather than play up racist issue like politician.

AIC diversification

veteran bumiputra auto parts vendors to Proton, Datuk Haji Sarip bin Hamid who own a few public listed company including AIC Corporation Bhd, Jotech Holdings Bhd. Started as auto parts vendor to Proton, AIC Corporation Bhd' s AIC stand for Autoindustries Corporation. However, Datuk Haji Sarip realize that margin become lower and lower when Proton demand it supplier to lower their cost. Thus, he diversified to more lucrative semiconductor manufacturing. Now, other than non-bumiputra control MPI, Unisem, Globetronics etc. Datuk Haji Sarip's AIC Corporation is the only bumiputra semiconductor manufacturer in Malaysia. Its later diversification to TFT-LCD manufacturing make him now the only TFT-LCD public listed manufacturer in Malaysia.

Datuk Haji Sarip is one of the bumiputra entrepreneur that I respect. He does not relied on contract from GLC like Proton, but he get contract from Multinational Corporation (MNC) base on his own competitiveness. However, I feel government never give him much help like other crony. He prefer to make donation to the poor rather than make political donation. Maybe this is the reason he never get help from the government.

Ingress invest in Thailand

Another bumiputra manufacturer Ingress Corporation Berhad set up factory in Thailand, Detroit of Asean, and Indonesia. The venture, however, yet to reflected on profit in financial statement.

Delloyd diversified into plantation

Another auto parts manufacturer Delloyd Venture Berhad, which control by non-bumiputra, has venture into oil palm plantation. Delloyd Venture also announced that it explore the opportunity to become an OEM handphone manufacturer.

All the above bumiputra and non-bumiputra companies prove that auto parts business is low margin business where it player try to diversified into other industries.

The most competitive auto parts manufacuturer in Malaysia

In my opinion, I feel the most competitive auto parts manufacturer in Malaysia is New Hoong Fatt Holdings Berhad. New Hoong Fatt's cash flow, grow are impressive compare to other parts manufacturer.

Link:The Edge: Slowing to a standstill
Shakeout among used car dealers
How the main auto players measure up

Update: Components factory lays off 270 staff
Two-hour notice company rapped


Monday, July 03, 2006

IOI Group: Unilever of Malaysia?

Mitsubishi used to be the largest conglomerate in Japan. Samsung, used to be the largest conglomerate in South Korea. Whereas, Jardin Matheson used to be the largest conglomerate in Hong Kong.

Jardin Matheson control Cycle & Carriage, which own Mercedes franchise in Malaysia. Jardin Metheson also control Dairy Farm, a company that take over Giant hypermaket in Malaysia. Jardin Matheson also control Guardian pharmacy in Malaysia.

Jardin Matheson used to be deemed as a company control by colonial British's family. Chinese richest family in Hong Kong, Li Ka Shin has take over another conglomerate Whampoa ( Now Whampoa-Hutchinson) Whampoa operate one the most busiest port in the world, whereas Hutchinson dominated telco market in Hong Kong, like Ananda Krishnan's Maxis in Malaysia. Li Ka Shin also operate Watson pharmacy in Malaysia

Malaysia government also take over a conglomerate from British colonial. Malaysia government take over Sime Darby. Sime Darby used to be a proxy to Malaysia economic.

IOI Group, initially compete with Sime Darby's Sime UEP Properties Bhd via IOI Properties. Later, IOI group also venture into plantation. However, unlike Sime Darby, IOI Group do not have Automobile division like Sime Darby.

However, market capitalization of IOI Properties overtake Sime UEP Properties. IOI Group also have the largest market capitalization among all the plantation company. Eventually, IOI Group market capitalization over take Sime Darby even IOI Group do not have Motor and heavy equipment division. IOI Group's oleo-chemical division is one of the top 5 market capitalization company in Industrial counter on Bursa Malaysia.

In Malaysia, the other plantation group that also operate a motor and heavy equipment division is Hap Seng consolidated Bhd. The company is being demerge from Malaysia Mosaic Bhd which has smaller market capitalization. The demerger has make IOI Group difficult to swallow the company as it has larger market capitalization.

The increase in market capitalization of IOI Group has lead to it controlling shareholder, Tan Sri Lee Shin Cheng over take Quek Leng Chan and Lim Goh Tong in Malaysia's richest 40 ranking by Forbes Asia. Please be reminded that Quek Leng Chan is second generation of tycoon, which mean he inherited a substantial portion of his wealth from his father and his uncle whereas Lim Goh Tong involve in lucrative gaming industry. Tan Sri Lee Shin Cheng was not on the top ten list few years ago!

Tan Sri Lee Shin Cheng come from a poor family. He has to sell ais-cream during his school day to make end meet. He also never involve in sin industry(gaming industry). This achievement is really not easy.

Malaysia manufacturing industry is threaten by China's low cost factory. This is just like Europe country a decade ago which threaten by Japanese lower cost manufacturer. Thus, we need to learn from European they compete with Japanese low cost factory a decade ago.

I used to benchmark Malaysia with Netherlands. One of the largest Netherlands company is Unilever Group. IOI Group, which has take over a few specialty oil and fats company in Netherlands and plantation land in Malaysia, clearly is a potential Unilever in Malaysia.

After Hong Leong disposal of OYL. Which have manufacturing plant overseas. The only Malaysia multinational company that have LARGE operation oversea only left IOI Group and YTL Corporation Bhd. IOI Group has announced venture into biodiesel recently.

IOI Group start with Lee Shin Cheng acquired an industrial gas company Industrial Oxygen Incorprated(IOI). He later injected his property company Lam Soon Huat(Now IOI Properties Bhd) into the company. This is similar with Tan Sri Datuk Lau Ban Tin's BIG's Industries Bhd.

It is not sure how many percentage of BIG Indsutries Bhd shares control by Tan Sri Lau Ban Tin now. Anybody who abl to control BIG Industries Bhd able to emulate Tan Sri Lee Shin Cheng step in creating wealth in one generation.


Saturday, July 01, 2006

Nanyang increase cover price to RM1.30 today

Contrary to market rumor. Only one news paper increase it cover price. Nanyang increase it cover price from RM1.20 to RM1.30. As Oriental Daily has increase their cover price from RM1.20 to RM1.30 not too long ago. There would be no longer any chinese newspaper daily that cost RM1.20 effective today.

Nanyang circulation might be deteriorated as those who buy Nanyang because it is RM0.10 cheaper per day will shift back to Sin Chew and Oriental Daily. Sin Chew Daily is the biggest gainer in these price change.

Hopefully, this is not a tactic of Tan Sri Tiong attempt to close down Nanyang by decreasing it circulation like what he did to one of the Sarawak base chinese daily that he take over previously.