Malaysia: for long-term investors only

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It's not just the US that has trouble putting its car industry out of its misery. Mahathir Mohamad, Malaysia's blogging ex-prime minister, is once again talking up the prospects of Proton, the country's floundering national carmaker.

Mahathir has personal pride at stake in this: he set up the firm in 1983 (Proton stands for Perusahaan Otomobil Nasional or 'National Automobile Enterprise', which gives you a clue as to how much of a role business sense played in the decision – next to none). But as you can tell from the comments on his blog, most of Malaysia thinks he's barking up the wrong tree.

And they're right. There's absolutely no sense to a country with a population of 28 million trying to support a mass-market car manufacturer that designs its own products. And the high tariffs that the government slaps on imported cars to force Malaysians to buy Proton's shoddy products only harm the economy.

Contrast Proton with Malaysia's second car firm. Perodua doesn't design its own vehicles; its products are simply rebadged Daihatsus, which is the right strategy in a market like Malaysia. These cars are reasonably popular with customers and Perodua has become one of the largest compact car manufacturers in Southeast Asia.

A couple of weeks ago, I wrote about prospects for a turnaround in the Malaysian economy and some of the trends we should be watching to see if things are going in the right direction. An end to support for incompetent national champions like Proton would be another good sign.

Unfortunately, the new national automotive policy released last week contained nothing encouraging on this score. In case it wasn't clear enough in my original piece, I should stress it again: any progress in Malaysia is going to be two steps forward, one step back. This is a long-term play for patient investors only

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Published in Blog More articles by Cris Sholto Heaton

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