Below is the recent posting by Tun Dr. Mahathir on Proton . Unfortunately of the 87 comments to date, not one really demonstrates the knowledge of this issue. So lets see how we fare.
Following is the reproduction from "Sound Bites On Proton" that appears on Tun Dr. Mahathir's blog
Dear Ir. Syahrizan,
1. I am not going to deny that in my time Proton was protected. All countries including Britain, Germany, Japan and Korea protect their car market. Britain had Imperial Preference, Japan and Korea ensured no foreign cars could be imported, even America insists on Japanese, Korean and Germans producing their cars in America, employing Americans and paying high salaries.
2. The protection for Proton cars had been there all along. Without protection we would have no car industry. Proton gained 80 per cent of the market at one time benefiting from protectionism.
3. Because of the APs (Approved Permits) for cars from countries which Proton cannot penetrate (Korea and Japan) sales of Proton went down. Proton lost money, the foreigners made a lot of money with the lower price of their cars sold in Malaysia. Their lower price is due to volume i.e. economies of scale. We could not achieve this because of their protected car market.
4. Now Proton is fighting back despite imports of foreign cars. I was making a comparison only between Proton under the previous management and the present management. The present management is definitely more capable even though foreign cars are still coming in.
5. The keeness to buy Proton is because it is doing well and that it owns a lot of property.
6. I am not responsible for the recent National Automotive Policy. I am not in the Government now. Please make your complaints to the Government.
Wenger's Response.Dear Tun,
Proton's assets are about RM 7.5 billion with about RM 3 billion being in Property, Plant and Equipment. Indeed RM 3 billion may seem to be a large number.
However, this accumulation of wealth is perhaps not the best indicator of the success of Proton. If the wealth was via a free market competition, then consumers would have the luxury of low prices and best value for money. This is a basic economic concept.
However, as you have indicated Proton's success is due to the high tariffs imposed on foreign car manufacturers. Your justification of the tariff is as a retaliation to domestic protection evident in other countries and to pre-empt any 'dumping' of foreign goods.
Whilst the argument makes sense in a perfect world, it fails to take into account the reality of the situation domestically.
Lets examine a few questions.
Who bears the cost of the tariff?It is the humble citizens of this country. Most of them are not very rich, and basically right now, are facing what is known as middle income poverty. Being wage earners, their income is fixed, and a high proportion of the income is used to pay off loans, expenses and other encumbrances. Most of them are frustrated at the high prices of cars, but are unable to argue out why tarriffs should be removed.
They have not studied Economics and so lack the lingua franca. Some who do indeed
study economics talk rubbish.How much is the cost of the tarriff.A high tariff results in higher cost for imports as well as a higher cost for domestically produced goods. For the case of Proton Berhad, it manufacturers a wide variety of cars, and the prices range from RM 33,000 to RM 100,000.
The prices are prohibitively high, and most people are forced into obtaining bank loans to fund their purchase of the car. Imported cars are of course a non-question as the tarriffs make it even more expensive.
Right now the total amount of bank loans on car purchases are RM 100 billion.
Due to the emergence of the Internet, many complain that for the same amount of money spent on buying a Proton car, one could obtain a good of perceived superior value. Or in the case of the poor, they could perhaps obtain a similar car at a cheaper price.
A back of envelope calculation, taking into current demand, seems to indicate that if car prices were 25% cheaper without this tarriff, households would RM 8 billion better off last year. Over the last 3 years, the sum was RM 21 billion.
I do not know how much consumers would be better off over the last 24 years. However I am quite sure it will be more than the RM 3 billion of property Proton currently owns.
If there had been no tariffs, consumers would not need to pay so much money. They would also need to be encumbered by such huge loans. As it stands now, on average every man, woman and child, owes RM 4,000 on account of a car.
Such deep debt burdens are unheard of in other countries. The households have to pay off not only the principals, but the accrued interest as well. This reduces their capability to save and to consume - activities that are direct inputs to the GDP.
So what it means is that the less families are burdened by this debt, the higher will be our GDP. The relationship is straight foward.
So whilst it is perhaps correct that domestic tariffs protect a local industry, however consumers will suffer on the whole and the countries economic growth will be compromised.
This is a long term scenario, and to quote a counter example of the growth in the 1990s belies a lack of understanding on what is the output gap i.e. the difference between potential GDP and actual GDP. In the 1990s, the output gap was quite large, so there was strong economic growth.
However a country's future cannot be microsectioned into a period of 10 years, after all a generation usually lasts for 70 years.
Thus it is long term thinking and long term solutions that will ensure whether Malaysia continues to experience economic growth and opportunities. Short term thinking and short term policies work for a while and then are found to be suspect. For example, AIG and Citigroup had for a period of time, a combined market capitalization comparable to our entire economy due to short term policies. Right now, the United States Government had had to pump in a rescue package equivalent to 2x our total GDP.
Thus, this short term thinking is not a problem unique to us. Long term thinking has been the key differentiator of many countries. Countries that can have a sustainable long term policy end up better, countries that have short term policies end up worse.
I understand your no longer responsible for the NAP.
However, I am not complaining, just correcting a misconception.
