A Doctor in The House: A Memoir of Tun Dr Mahathir Mohamad (80 page)

Building a Malaysian car really meant maximising its local content. I wanted Malaysians to learn about engineering, a crucial component of the manufacturing industry. I did not believe we could ever consider ourselves a developed country if we were merely consumers of industrial products from other nations. I did not want us to be like most developing countries, which may be very rich but unable to produce anything for themselves. The world is full of would-be cosmopolitans with a taste for all the finest modern products, but who have no ability to produce them or even understand how they are made. This kind of superficial modernity did not appeal to me as it could not provide a secure future for our people.

The idea of producing a national car did not receive much support initially. There were the usual cynical, defeatist remarks that we would never manage it. The Opposition, the Press and some economists were pessimistic about our prospects. Opposition politicians said that it was not for a developing country to build cars, and that we were leapfrogging ahead without having the money or the engineering and management expertise to do it. They wanted us to remain as we were—a vulnerable agricultural country. There were even a few disparaging remarks from members of my Cabinet.

I anticipated that negative reaction because I knew the Malaysian mind and how Malaysians like to stay in their comfort zone. They would not consider producing a Malaysian car as it had never been done before. I at least expected the support of my Deputy at the time, but it seemed Tun Musa was not happy with the idea either. He did not say it in so many words—he did not need to—but I learnt about his sentiments nevertheless.

Our foremost cartoonist Lat
[1]
 drew a cartoon which showed the Malaysian car with the roof of a Malacca bullock cart. To me, that cartoon captured our mentality perfectly. It depicted the
mental block our people had, an inferiority complex that needed to be overcome. Unless you take calculated risks, you will never know whether you are capable of achieving anything. I had been brought up to be careful with money and I was certainly not going to throw government money away on anything frivolous.
 

Those negative comments and the opposition I faced simply hardened my stand and made me more determined than ever to build the national car. Being Prime Minister enabled me to push my ideas through. The first

Malaysian carmaker, Perusahaan Otomobil Nasional Berhad or Proton, was established on 7 May 1983 as a joint venture with Mitsubishi Motors (MMC) and Mitsubishi Corporation. Their participation in the equity ensured their support for the project. Mitsubishi was not the best automotive company of Japan but they were the only ones willing to entertain and become involved in my idea of a national car. I never once considered the Europeans or the Americans as they were already losing their market share in Malaysia and elsewhere.

Prior to proposing the project to MMC, I had talked to Daihatsu, the maker of small cars in the Toyota stable. But they were interested only in having us produce their cars and did not want any alterations to be made to their models. That was hardly my idea of a Malaysian national car. I appreciated the need to move step by step, but in the end Malaysia had to have the capacity to design and build our own cars. We had to start boldly.

Mitsubishi was more accommodating than other makers, but I doubted that they would want us to have the full capability to build cars which might compete with theirs. But so long as they were working with us as partners, they were prepared to withdraw their cars from the Malaysian market so we would not compete directly against each other. This loss of the local market actually worked to their advantage. In the early stages, much of the car included Mitsubishi design and parts and the returns on Mitsubishi’s investments were high. They earned a bigger profit per car simply from supplying the engines and transmissions than they would have from selling a complete Mitsubishi car in Malaysia. With Proton capturing 80 per cent of a rapidly-growing car market, the gains for Mitsubishi from the Malaysian national car project were substantial. Later, when I wanted to build a small car, Daihatsu became very cooperative after seeing how Mitsubishi had profited from the national car project. The second national car now outsells Proton.

I was not overly ambitious though. During the 1964 General Election my constituency was provided with a small Toyota car. It was quite basic with little refinement, and it was cheap. Although in those days Toyota could not match what was being produced in Europe, I thought we could take the blueprint of that car and make some cosmetic changes before we produced our first car. Mitsubishi Motors conducted a survey of the Malaysian market and their recommendation was for us to produce more sophisticated cars of 1,300cc to 1,500cc, which were the most popular in the Malaysian market.

Proton’s first model, called the Proton Saga, was launched on 9 July 1985. The name of the car came from saga seeds, which are so uniform in weight that they were once used to weigh gold. We expected our car to be as perfect and as uniform as the saga seed, but to be frank, the standards of the first Proton Sagas were not really up to the mark. HICOM nominated the first CEO, a local, but he had virtually no experience. When the cars did not meet the standards set, he simply lowered the specs. Though the permissible gap between the doors and the central pillars was initially set at three millimetres, for example, he reduced the standard to five millimetres. The public did not notice it but the Japanese supervisors did. There were also some small mechanical failures, though I think we did not do too badly for first-timers. I kept hoping that those initial teething problems would disappear, but the car was not selling well. At one stage Eon Berhad, the principal distributor, refused to take further delivery as it had too many cars in stock.

At that time our national automobile market was only 50,000 units a year. Proton was producing 25,000 units but the motoring public did not think it wise to replace their Japanese cars with a Proton, despite its lower price. The company was losing money—if it failed I would be in for a lot of criticism. Not even government supporters would spare me and the Opposition would have a field day. I knew I had to do something, so I decided to move out the Malaysian CEO and bring in the Japanese to manage the factory. The Malaysians would learn from them as understudies.

Mitsubishi Motors agreed to loan one of their experienced executives and in accordance with Japanese business practice, we had to pay him a substantially higher salary, in addition to paying his salary in Japan. It was very expensive but it proved to be a wise decision. During the four years that Proton was under Japanese management, the quality of the cars improved considerably and by the first year, we had turned the company around. But the most important contribution of the Japanese was to introduce Japanese work ethic and practices. Our workers did not become as good as theirs, but our productivity and standards improved considerably.

I believed we could do anything, provided we were prepared to learn. The Japanese obviously knew something that we did not, which is why they succeeded in the automotive industry. It was not just a matter of technology—a superior work ethic and sound ideas were needed to make our industries succeed. It was the Japanese who introduced 
kaizen
 and the JIT, or Just in Time system. The first entails striving continuously to improve both the way we work and the quality of products. Just in Time involves planning the workflow and schedule so that the parts are produced and delivered just when they are needed, rather than having large but idle warehoused stocks, which are subject to deterioration and pilferage. This saves financing costs and storage space. Although automation and robotics could improve production, we had to be judicious in opting for them because such machines were expensive. In many instances, we stayed with manual labour to lower our cost.

The new Japanese manager reported Proton factory’s performance every quarter to me. I always knew how much money was being spent, what problems they were encountering, and how sales were going. I also visited the factory often, but even when I did not, I knew how things were getting along. That kind of close monitoring was not really a Prime Minister’s job but I felt I was responsible. If Proton failed, I would be blamed, and besides, I was fascinated by the manufacturing process.

The manufacturing of cars was perhaps the first industry to adopt mass production techniques, the result of which was a huge reduction in cost. Mass production requires large volume and a properly programmed assembly process. The first step in car manufacturing is to produce the stamped parts. Step by step, the parts are put together to make up the body until finally, the engine, transmission, control and instruments are fitted. Amazingly, a fully built-up car would emerge from the other end of the assembly line, tested and duly certified. Visitors to the factory were fascinated by what went on. An overhead walkway allowed them to look down upon the workers as they assembled the cars without getting in their way. I think these visits helped to orient the minds of the young towards industry, including the discipline of the industrial workplace and production. Since Malaysia had long been an agricultural country, this reorientation was essential. It was fundamental to the process of cultural change that we were hoping to catalyse through the national car project.

Once the Japanese had the factory running properly we put Malaysians back in charge of management. Clearly our Malaysian managers had learnt a lot from the Japanese and we no longer needed to call in Japanese support, even though production levels were now far higher than before. At one stage we were producing 200,000 cars a year, and there were regular model changes as well. Our Malaysian engineers and designers rapidly acquired the full suite of skills in all phases of design, prototype production, testing and finally, mass assembly. Between 1983 and 2000 we acquired all the necessary technology of the automotive industry. But it is a sector that is constantly evolving. We needed new input all the time, so we acquired Lotus Engineering of the United Kingdom, famous for sports and racing car engine development. This helped us with our own engines, but even that was not enough. The Germans and Japanese were constantly improving their cars and unless we kept up with them, we would lose even the Malaysian market.

Some comment is necessary here about industrialisation and protectionism: there were Malaysians who were ashamed that our country protected its national car. Perhaps they imagined that other countries did not protect their industries and their economies, but the truth was these countries, particularly the developed ones, had more extreme protectionist policies, especially in the early stages.

I grew up with the British Empire’s Imperial Preference, which was a blatant and unscrupulous protection policy for British products. Today developed countries apply tariff and non-tariff barriers to shield their products from competition. The US protects its agricultural products with huge subsidies and competing imports are subjected to stringent quality control. This is hypocritical. It is disguised protectionism. Malaysian palm oil was long declared injurious to health so that the US soya bean oil industry could be protected. Ironically, it was soya bean oil that was eventually shown to be dangerous to health. But condemnation or labelling works—long after palm oil was declared safe, US citizens still would not consume it as their rejection of the product had by then become second nature.

The US also imposed high emission standards on imported cars, especially after Japanese cars began making serious inroads into the American market. But the Japanese were equal to the game and produced cars with better emission standards than were required. The Japanese themselves and the Koreans are skilled in protecting their own markets. Until very recently, very few foreign cars could be sold in their countries.

Malaysia is a developing country with a small domestic market, which means nothing that we produce enjoys economies of scale. To industrialise, we needed to protect our infant industries. Accordingly the national car was protected by a lower excise duty than import duty on foreign cars. As a result Proton’s share of the Malaysian car market grew rapidly and at one time hit a high of 80 per cent. No one really complained because they were used to paying high prices for imported cars. The Government did not lose out either as higher sales of Proton and an expanding market earned it increased revenue.

In a globalised world—with borderless cash flows—protective tariffs were questioned and forcibly modified. The rich industrialised countries wanted free access as they sought to penetrate the markets of the developing countries. Globalisation gave the raw materials of the poor countries no competitive advantage, but the manufactured products of the rich would enjoy lower tariffs. Proton should have been able to export more cars, but we were high-cost producers since our industry was still small. We could not compete with cars from Korea and Japan and gained nothing at all from the lowering of import duties following globalisation.

For this reason, I often spoke out against globalisation. Eventually many developing countries saw the crafty ploy behind the rich countries’ pro-globalisation rhetoric, but the rich were not to be frustrated in their endeavours to exploit the markets of the poor. They proposed supposedly mutually beneficial Free Trade Agreements between nations outside the World Trade Organization framework. Among the first countries to enter into an FTA was Singapore. For Singapore, which is already a free port, the FTA cost them nothing. They did not have to give up any tax. But the FTA between Singapore and the United States was held up as a model to the other ASEAN countries. They were told that if they did not enter into an FTA with the developed countries, they would lag behind Singapore. Beguiled by the prospect of increased exports to the rich countries and to each other, the ASEAN countries fell over each other to enter into free trade agreements. ASEAN even came up with its own FTA, whereby national goods from member countries could enter one another’s markets with minimal or no tax.