In the last 30 years, a lot has changed. The sale of motor vehicles in Southeast Asia was at 3.2 million in 2014, according to Asean Automotive Federation. Indonesia, with consumers moving from motorcycles to cars with the increase in buying power, accounted for 38 per cent of total motor vehicle sales in the region in 2014. Asean is now the fifth largest car market in the world.
“Even if the Asean car is sold only in the Indonesian market, that is good enough. No need to worry about exporting to other Asean countries for now,” he told The Establishment Post when asked about the sustainability of the business. Malaysia has the largest car ownership per capita number in the region with 336 vehicles per 1,000 people. Indonesia has 52 but the potential to grow is great.
The idea of having an Asean car came in the 1980s when then prime minister Tun Dr Mahathir Mohamad wanted to expand the market for the Malaysian national car Proton and extend its winning streak to the region. But the Southeast Asian market at that time was not a strong passenger car market. Thailand and Indonesia were very much a motorcycle and pick-up truck market. The only country that had a strong passenger car market was Malaysia.
Now is probably the right time for an Asean car. Talk of such a car resurfaced during Malaysian Prime Minister Dato’ Sri Mohd Najib Tun Razak’s visit to Jakarta in October last year. He was reported to have said: “This means Proton and Indonesia will launch the Asean car as a viable project after in-depth studies.”
Indonesian market is big enough
Motoring journalist Yamin Wong says Asean car is a good idea but it needs to be executed fast so as to revitalise Proton Holdings Berhad, which has been seeing a steady dip in car sales over the years. In 2013, Proton had a 21.2 per cent market share and that reduced to 17.4 per cent in 2014. This is a far cry from the 1990s when Proton was controlling 80 per cent of the market.
Total vehicle sales in Malaysia is believed to be reaching saturation point but the Malaysian Automotive Institute believes that for 2015, car sales will increase to 700,000-750,000. Analysts say the growth will be in the non-national car segment. Proton and Perodua are the two national cars.
“Proton needs a partner that can give high volume and the Indonesian market has high volume. Indonesia has a huge domestic market, like the US,” says Mr Wong, editor of Car, Bikes and Trucks, a motoring supplement in the New Straits Times. He has been a motoring journalist since 1980.
The high volume also will allow Proton to reduce its car price in the economies of scale. “The cost of R&D for Proton is high, running into millions. If the volume is bigger, then the cost can be brought down,” he says. This will give the Asean car the edge it needs to fight off competition from car makers who already have a huge share of the market like Toyota-Daihatsu and Honda. Mr Wong dismisses the possibility of any kind of collaboration with the major players in the region because they already have a lion’s share of the market in Indonesia.
It will not be easy for Proton to make its mark in the Indonesian market. According to a report by the Association of Indonesian Automotive Industries, in 2013 Proton sold 1,088 units in Indonesia, which accounts for 0.1 per cent of the market share. In 2014 Proton only sold 523 units.
Manufacturing licence is an issue
Dewa Yuniardi, automotive industry observer and communication chief of the Indonesia’s Archipelago Automotive Industry Association, predicts that even after the partnership with PT. Adiperkasa, Proton will continue to struggle in Indonesia. He says this is mainly because Proton relies heavily on manufacturing licences bought from other producers and do not really have the platform to develop its products. PT Adiperkasa, a private company backed by the Indonesian government, is working with Proton on developing the Asean car.
“Proton will find it hard to compete in the Indonesian market if they rely on those existing licenses because here there are so many other products here that are more dynamic,” Mr Yuniardi tells The Establishment Post. Proton bought licences from Japanese giants Mitsubishi, which means that the Malaysian firm is granted Mitsubishi’s technical assistance and patents solely for the purpose of developing a “licenced product” to be sold under Proton’s trademark and styling.
“If you only buy licences, it is very hard to develop the product. This is because you do not master the engineering philosophy, and if you do try to modify too much, you can be sued by the owner of the licence,” he adds. Mr Yuniardi explained that in order for Proton to do well in Indonesia, as well as other Asean countries, it must either change the way it operates or continue to buy more licences more frequently.
“The automotive industry is so dynamic, it moves so quickly. Car producers change models and types almost every other month. Japan and Korea dominate the industry because they hold their own licences. Korea even have their own design centre,” he says.
Challenges for Asean car
Mr Wong says the Asean car manufacturer needs to be able to study the market well, know how the market will develop in the next few years and employ strong business practices. “They must build cars that people will want to buy in five years and not make cars for the present market. Also, what the Indonesian market wants are small cars and small MPVs. These are some of the factors they must consider.”While Malaysia can look forward to an exciting Asean car project through the partnership with PT Adiperkasa, Mr Yuniardi believes, it is the same old story for Indonesia. Indonesia has always been a production base and market base for foreign automotive producers.
This, according to Mr Yuniardi, is down to Indonesia’s lack of appreciation of technology. “The most important technology is the technology to design, not the technology to produce, which is very easy. Indonesia has focused too much on production and so after over 60 years of automotive industry in Indonesia, we’ve only got experience in producing.” Mr Yuniardi adds that the only real benefit Indonesia can gain from the partnership with Proton is that it will open more jobs for Indonesians.
Then there is the baggage that Proton needs to shed: protectionism and preferential policies. The idea to expand Bumiputra participation in Proton production was noble but this resulted in poor quality products and weak component reliability, which continues to nag Proton and attempts to address this have had little success. [See: Malaysia’s national car driving into a dead end: Not many options left for Proton]
It will not be easy to compete against Japanese car makers who have had a strong presence in the region for the past 40 years but the Asean car project needs to be run as a commercially driven business with national interests taking a backseat.
* This article was jointly written by Vanitha Nadaraj and Ardi Wirdana
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