Bumpy road ahead for Proton’s local vendors

Vendors need to minimise costs and improve quality, or risk losing out to rivals, especially low-cost Chinese manufacturers


For three decades, Proton’s car vendors have been protected from competition.

The rights to produce components for the former national carmaker were exclusive. Competition was minimum and as such, producing car parts was a very lucrative venture — especially when Proton was selling more than 150,000 cars annually.

But with the changes in the management and China’s Zhejiang Geely Holding Group Co Ltd buying a 49.9% stake in Proton Holdings Bhd, local vendors are waking up to a totally new reality. Vendors need to minimise costs and improve quality, or risk losing their business to competitors, especially with low-cost Chinese manufacturers knocking on Proton’s door.

A source at a company involved in seat upholstery said it would be really difficult to challenge the Chinese manufacturers.

“For example, for leather seats, a Chinese manufacturer can produce a similar product at only 50% of the cost,” the vendor told The Malaysian Reserve. “We can’t compete with that kind of cost due to the mass production in China.”

Low material costs, a strong automotive value chain ecosystem and the abundance of cheap labour in China are putting local vendors at a disadvantage.

Recently, Proton’s partner Geely informed local vendors to reduce the cost of their components by 20% as the carmaker seeks to boost competitiveness in the market.

Geely already has a strong vendor system, selling about 778,896 vehicles in China alone last year. In the first 10 months of this year, the Hangzhou, Zhejiang-based carmaker sold 935,677 vehicles in the China market, according to figures from Carsalesbased.com. In September alone, almost 2.3 million passenger cars were sold in the world’s second-largest economy.

With such a huge market, the car components market are thriving in the world’s most populous nation.

Proton vendors are facing tough choices to improve productivity and cut cost, or they have to seek partnerships with China’s vendors.

According to industry sources, a majority of the Tier-1 Proton vendors are currently visiting Geely and its vendors’ factories in order to prepare them for possible partnerships with China’s automotive suppliers.

The source said the visit is led by Perusahaan Otomobil Nasional Sdn Bhd (PONSB). It was meant to provide the vendors with the “opportunity” to explore China’s Tier-1 market and engage in potential joint ventures.

“The visits will give some chances for the vendors see- king potential partners, either as equity or technical partners,” said a source.

Li Chunrong, PONSB’s new CEO, last month had asked the vendors to cut their supply parts as much as 20%. But Li, in the monthly briefing with vendors, had guaranteed to maintain the minimum 40% local content.

It is believed that the CEO also suggested local vendors to seek business partners from China.

Another vendor said they have to maintain the quality determined by Proton and adapt the latest technology, besides lowering prices.

“Either we do all these or find business partners in China to meet these objectives,” the source said, adding that the last option would be to exit the business.

Surviving vendors though can expect a more lucrative future when the Proton masterplan is unveiled and more vehicles are expected to be produced, especially to retain its position as a leading local car brand.