Malaysia in reverse gear: Proton to make Kereta Lembu

Its time for our leaders to become readers. But sadly it is not part of the budaya for our people to read books, especially in the English language. Kalau baca pun, its ghost stories, buku agama, Mangga magazine, Utusan Malaysia, Berita Harian and Harakah – stuff that can make you brain-dead.

Our leaders should read real books. To make it easy for them our leaders can start reading books that are more than 20 years old. Then maybe after that they can progress to more contemporary and modern books. One 28 year old book that I strongly recommend is Michael E. Porter’s book on Competitive Strategy (1980). Another good book that Porter wrote 23 years ago is Competitive Advantage (1985). In these two books Porter explains why the Italians are so good at design, at making leather shoes and belts, racing cars and so on. Each country or community has certain competitive advantages. We should be aware of these advantages and how to formulate competitive strategies.

Porter’s books are not pie in the sky speculations but observations of reality. To ignore reality is to be bodoh. If we choose to ignore reality then surely it is bodoh sombong.
Which brings us to today’s topic. A businessman was saying recently that it is difficult to buy small diesel lorries. The choices are getting limited. There are tens if not hundreds of diesel lorries available in the market worldwide but in Malaysia the choices available are narrowing. There is a simple reason for this.

Diesel technology has now evolved very quickly. Diesel is now being developed as the ‘clean and green fuel’ of the future. This is largely due to technological advancement in diesel refining which produces a much cleaner fuel with much lesser impurities. As a result of this cleaner diesel two things have happened. Many countries (including India, Singapore, Thailand, etc.) plus of course the US, Europe, Japan and Korea have made it mandatory that only the new cleaner diesel be sold in their countries. This reduces carbon dioxide (CO2) emissions. But Malaysia still sells the old ‘dirtier’ diesel fuel.

Secondly, based on this high-tech diesel fuels, more efficient diesel engines have been developed especially by the Germans. Volkswagen, Mercedes Benz and Audi of Germany are leading the charge in newer, more efficient, cleaner diesel engines. The sad news is, none of these engines can run well on the old diesel fuel that is sold in Malaysia. New diesel truck engines are also being made to use the new diesel fuel only. They cannot run well on the old diesel. That is why the choice of diesel trucks is narrowing in Malaysia because we are still using the old diesel fuel.
Newer ‘common rail’ fuel injection engines are getting common. Fuel is pumped into a solid tube or 'common rail' which is located above the cylinders. The fuel in the tube is kept at a constant high pressure and is then injected directly into the cylinder through electronic timing. Because of the cleaner fuel, the fuel injector nozzle can be made very fine to achieve better efficiency. But if you use the older, dirtier diesel fuel that we have in Malaysia then these nozzles can clog up. That is why people who buy the new Mercedes Benz diesel cars (including the new luxury R series) will face engine problems. These cars 'choke' on the old diesel.

We need to change to the newer diesel yesterday. All diesel cars and trucks, including old ones, can use the new diesel without any problem. But the new diesel engines cannot use the old diesel fuel.

Now lets get back to Michael Porter and competitive advantage in the motor industry. India has produced the Tata Nano, a 54 miles per gallon five seater car priced at RM8,500. Today we read that Volkswagen has developed a new technology called Bluemotion to meet new EU emissions requirements and higher fuel costs. Bluemotion combines engine design, body shape and low kerb weight to give better fuel efficiency. Now hold on to your seats. The new VW Polo 1.4 litre three cylinder TDI diesel engine car already gives 74.3 miles per gallon (mpg). The VW Golf 1.6 litre diesel already gives 62.8 mpg and the Passat 2.0 litre diesel gives 55.3 mpg.

These are fantastic numbers. We must understand that these advances are possible because of new technologies in composite materials, rubber technologies, light weight metals and engine design. Even the Tata Nano is made of light-weight composite materials developed by high-tech firms in India. So gone are the days when car manufacturers closely guarded engines and body designs. Nowadays car makers also invest in electronics, engine computers, composite materials and light weight metals. These are their competitive advantages to reduce weight and meet stricter emissions requirements and neutralize ever higher fuel costs.

Now lets look at some more numbers. By 2012, the EU’s emissions standards require a 2.0 litre car weighing up to 1400 kg to produce not more than 130gm of CO2 / km. The new 2.0 litre VW Passat at 1348 kg only produces 136 gm of CO2 per km. The 74.3 mpg VW Polo produces 102 gm of CO2 / km. They have beaten EU standards five years ahead of schedule.
Soon Fiat, Alfa Romeo, Citroen, Renault, Peugeot, Volvo, Skoda, Jaguar, Toyota, Honda, Kia, Hyundai, Ford, GM and every other car maker who wants to sell cars in Europe will be following suit. Where does Proton fit into all this ? Well Proton can export their cars to Zimbabwe, the Islamic car to Iran and other such bodoh sombong options.

This takes us back to competitive advantage. You must develop your competitive advantage. Proton’s competitive advantage is very simple. The gomen will raise the trade barriers higher and higher to protect Proton. Imported cars like the 73 mpg VW Polo wondermobile will be taxed to the sky. Then we cannot drive it anyway because our diesel is 'dirty'. Bodoh sombong Malaysians will have no choice except buy Proton. This is Proton’s competitive advantage and their competitive strategy.

If VW develops a 73 mpg car, Proton will just run to the Gomen and cry ‘Boo hoo, boo hoo hoo their car gives 73 mpg. Raise the duties, raise the duties’. And this is what the Gomen will do. It will also preserve the status quo in the AP sweepstakes. The Menteri MITI and in-laws plus all the other hangers on and cronies will still get to ‘shop at Naza’.

According to the AFTA agreement which we signed, by 2003 we could only impose 5% tax on cars made within Asean and APs should not be required. But Malaysia has delayed this under CEPT (Common Effective Preferential Tariff). So the car dealers can tell you today, five years later that when they import Nissans and Toyotas from Thailand, the Customs still asks for APs. They also have to pay import duties. You can get the APs from the MITI Minister’s in laws. Other cronies may also have APs.

The Asean countries have agreed that by 2010 even the CEPT must go but that is not likely for Malaysia. Why? Because Proton is in no position to develop composite technologies for automobiles (or much else). That by itself is a multi billion Ringgit investment. Also Proton does not have Tun Dr Mahathir who read all the books and scientific journals and knew exactly what to do (well technically). Minus Dr Mahathir, maybe Proton will still make the cleanest and greenest car of all time – a kereta lembu = a cow car .

Proton is bungling along. They burned a chance at a merger with VW. Just how bodoh sombong can you get? How many times in Malay history since Hang Tuah do you get an offer for marriage from a major world class German car maker? Kenapa lah bodoh sangat? On the one hand we open ‘Iskandar’ for colonization by foreigners from Singapore but on the other hand we do not want to lose a ‘strategic asset’ to foreigners from VW? If Proton becomes a rust bucket, will it still be considered a ‘strategic asset’?

APs, trade barriers, duty protection, high import taxes etc will nail the fate of our country. Proton cannot compete in the face of such rapid and super charged advances in automotive technology outside the country. The Audi Q7 has a radar that will soon become standard fixture in European cars. GPS is already a standard feature in most European cars. Automotive Speed Reduction or ASR (which saves human lives) first appeared in high end German cars a dozen years ago. Now they are quite standard features even in low end Toyota Corrollas, Toyota Vios and Korean cars too. But even our ‘premium’ Proton Perdana does not have ASR. Proton does not even provide air bags in all its models.

As you are reading this the Europeans, Japanese and Koreans are making even more advances in their automotive engineering. But Proton will never develop the ancillary technologies needed to make a 74 miles per gallon car. Oil prices will go past USD100 per barrel. Petrol subsidies will cost more and more taxpayers money. Our bodoh sombong Finance Minister 2 has said that this year tax payers need only fork out RM35 billion in oil subsidies. This is also part of Proton’s competitive advantage. Get the taxpayers to pay higher oil subsidies so that Proton can make and sell outdated, inefficient and Flintstone type automobiles. If we can drive 74 mpg cars, we may not need so much oil subsidies. But if you want a 74 mpg car from Proton well they can make you a kereta lembu. And if you want Automatic Speed Reduction you can squeeze the lembu’s kohones.