Malaysia’s Car Industry Back in Gear : Autos: After a shaky start in 1985, sales of the Saga are brisk, thanks to help from a Mitsubishi executive who introduced Japanese techniques.


After years of bad news, the Proton Saga finally is on the road to a happy ending.

Sales of the Saga, which has been dubbed Southeast Asia’s first locally produced car, are booming and have captured two-thirds of the domestic auto market despite a four-month waiting list. In Britain, it sold 10,300 in its first year, far above expectations.

The car, which closely resembles a Mitsubishi Lancer, is produced by a joint venture, Peruhasan Otomobil Nasional (Proton), 70% owned by state-run Heavy Industries Corp. of Malaysia and 30% owned by Mitsubishi of Japan.

It is the pet project of Prime Minister Mahathir Mohamad, who had longed dreamed of Malaysia being an industrial power with its own national automobile. In recent years, industrial production has taken off, with Malaysia becoming the world’s largest exporter of semiconductors and a major manufacturer of electrical goods.


But the Saga got off to a shaky start when it began production in 1985 because Malaysia was entering its first recession ever. Car sales were stagnant. Proton also was saddled with debt denominated in Japanese yen, which was experiencing unprecedented appreciation.

By 1988, Mahathir had replaced the Malaysian management with a Mitsubishi executive, Kenji Iwabuchi, who introduced classic Japanese management techniques such as consensus decision-making and aggressive marketing. Even in a recent speech, the prime minister still noted that “our managers are young and have yet to acquire the experience and expertise to take over Proton.”

Iwabuchi also was aided by a turnaround in the domestic economy, which is now moving ahead at 8% a year--one of the strongest in the developing world. As the market for cars picked up, Saga was sheltered from competition by a system of tariffs that adds 100% to 300% to the price of imported cars and 35% to locally assembled cars, but only 10% to the Proton.

Thus, while the car market grew from 38,000 vehicles sold in 1987 to 81,000 last year, Proton maintained a steady 65% market share. Sales of 65,000 Proton Sagas in Malaysia are forecast for this year.

Proton employees last year went on a double shift to increase production and in August will start working Saturdays and public holidays to bring output up to 90,000 a year.

As managing director of Proton, Iwabuchi also embarked on a three-phase export strategy. It was designed to sell to markets where at first few design changes were necessary, such as Bangladesh, and then a second stage where exports could take place with simple changes. The final phase, yet to be introduced, will involve substantial design changes.

Britain fell into the second category because, like Malaysia, the country uses right-hand drive cars. Proton merely had to add seat belts in the rear seats and make a few other pollution-control changes to enter the British market.

The Saga arrived in Britain in April, 1989, and was an instant hit with its low price tag and American-style “buy now, pay later” sales pitch. Proton expects to sell 13,500 Sagas there this year, more than double initial forecasts.

While Malaysia, as well as neighboring countries such as Thailand, has been assembling cars for years, the Saga is the first to be manufactured in Southeast Asia from components that are mostly locally made.

One sore point in the company’s clouded history is the question of exports to the U.S. market.

Proton passed up an initial offer from Chrysler Corp. to distribute the Saga in the United States through its vast dealer network. Instead, the company entered into an agreement with the Canadian auto entrepreneur Malcolm Bricklin, who brought the Yugo to America.

The plans collapsed with Bricklin’s Global Motors, which had the license to import the Saga, filing for bankruptcy proceedings, and the two sides have now gone to federal court.

Speaking recently about the U.S. fiasco, Prime Minister Mahathir noted ruefully at a news conference that “we’ll be careful next time not to be involved with parties who do not have the necessary financial backing.”

The company estimates that it would need to spend $20 million to upgrade the Saga to meet the safety and pollution control requirements of the American market. Another factor is how eager Mitsubishi might be to have the model in the U.S. market at a time when Mitsubishi’s own American sales are troubled.

But things could not be rosier for Iwabuchi, 69, with sales high and profits last year at 100 million ringit ($27.7 million), triple the previous year. An accumulated loss of 137 million ringit will be wiped out this year.

Mahathir has asked Mitsubishi to extend Iwabuchi’s contract for another two-year term.