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Proton and MAS simillar but not the same….

05 Jun

Much debate has emerged after Proton posted is FY2006 results which saw it lose RM591 million. Meanwhile, MAS has posted another quarter of profits.

Symptomatically MAS and PROTON are similar, but at the root cause level their problems are different as day and night.

If we were to cast our minds back over the last 10 years or so, MAS is the company that quarter after quarter racked up losses while Proton racked up profit after profit. While the population in general is pleased as pink to see what Idris Jala is doing, the resentment towards Proton is getting higher and higher all the time.

Let me try to differentiate MAS and Proton…

MAS always had a good product (in their case service) with bad management. Proton, on the reverse had a bad product with good management. (How can I say Proton has good management..well read on). MAS touched the lives of a very small percentage of the population, PROTON touched the lives of a very large percentage of the population. While MAS to many was a concept, PROTON defined the reality of Malaysia Boleh.

In the case of MAS, Idris Jala came in and brought about better than good management and the results are now showing very quickly. In the case of Proton, good management was replaced by bad management and the results are showing equally quickly.

Now if you look at MAS, most people were actually quite happy to fly MAS. It was cheap, service was good, in fact up-front service was more than good, booze was free and free flowing etc. but it was losing money because of bad management. It was bloated and most importantly there was never a strong sense of accountability nor clarity for the P&L.

MAS competed both in the highly protected and regulated domestic air space as well as the cutthroat international airspace. KLIA or Subang as a hub never grew to an international gateway, like Bangkok and Singapore. International traffic on MAS was predominantly people who were headed to KL or tourist between Europe and Australia who were looking for good value for money for a very long journey. Yield & load factors dictated pricing and hence to keep loads up prices had to be kept low relative to service level. Idris probably asked a very simple question: what’s the point of flying with 80% load and lose money?

In fact whats the point of doing anything only to lose money?

Even Grammen Bank, which is a micro credit bank – in Bangladesh, serving the poorest of the poor is run profitably – thus this kills the “social responsibility” argument that most government linked companies put forth to justify their losses!

In the case of Proton, most people were initially very happy with the product – SAGA but seriously unhappy with the service be it sales or after sales. EON were too busy chasing profits at the expense of “customer satisfaction” (please go back to the days when one had to pay RM5,000 under the table money for a car that cost Rm30,000) and this started sowing the seeds of discontentment in the buying public.

As more and more localization took place (imported components were being substituted with local components) real product quality started to drop…. for example, just look at power windows, wipers, glove compartment lid, etc. The compounding effect of dropping product quality coupled with lousy service only went to fuel consumer anger.

The “good management” part about Proton came about that it realized this fairly quickly and started to address them one by one and in a way that kept Proton profitable. It pushed EON to up its service and quality and the friction between the two probably came to a head, such that Proton decided to grow EDAR to compete with EON. Mind you, EON was making far greater profits that Proton was. Proton had to carry all the heavy investment costs, EON only had to sell and service and yet they were making the money.

By the way, this was a very stupid argument as in any value chain, the one party that MUST make a profit is the dealer / retailer. If they don’t make profit, why should they sell your product. In return the dealer network serves as a base for the manufacturer to convert product into cash . Proton got paid as soon as the cars crossed over to EON, irrespective if EON sold a single car or not, hence Proton was guaranteed a level of Revenue and Cash, while EON took on the retail risk. With Edar because it is wholly owned – its not the same. If dealer is loosing money because of poor management or incompetence, that is a different matter all together.

Anyway, the best example of Proton’s commitment to customer care is the center of excellence in Mutiara Damansara. I don’t want to debate how well or not it is working but it shows a commitment.
In addition, Proton knew it had to address the issue of consumer confidence and then price.
It embarked on a R&D and product development phase which resulted in the WAJA, GEN 2, NEO, SAVVY product line which was a shift away from the Mitsubishi reliant SAGA/WIRA/PERDANA/PUTERA line up.

Forget about how clever or stupid the products are, the point is they pushed forward to deal with their top 2 problems.

Quality and Price necessitated 3 big steps forward:

a. investments in automation and better production facilities, hence Tanjung Malim

b. new design for manufacture process with tier one vendors coming in take on more responsibility for design and quality.

c. a rapid step up in R&D capability – hence the acquisition of Lotus.

So relative to MAS, Proton had already planted the seeds for success as far back as 1997. It had one more great hurdle to cross, that is to fight with the competitors – on price which meant getting economies of scale in place, quickly.

There are 2 realties about car producing countries :

a, you are either so big in population that your domestic market gives you economies of scale

b. or you have a small domestic market that give you a base business but the bulk of your volume is exported

Either way, government regulation and tariff structures are needed to regulate the growth of the industry. And there is a fine balance in the tariff structure between the price a consumer will pay for “national pride” and being forced to buy “crap”.

In a way success breed contempt and because of Proton’s good management – the trump card it kept playing was – “well see how much profit we are making” and the more Proton said it, the more the the consumers resented it.

After all, any one can make profit , if the market is protected and the price is high enough, right?

Not true! Mahaleel gets booted out, a new board and CEO is brought in place and the floor literally fall open. It becomes a free fall. Proton has reached a point where consumer resentment is so high that for as long as there is a viable choice, consumers will buy non Proton. Hence the issues faced by the current management are significantly different from that over the previous 5 or 6 CEO’s and certainly not the same as MAS. In any business, this is the biggest nightmare – that is to have a resented brand, and it cannot be addressed purely by platitudes.

Most consumers, if given a choice would not use Telekom Malaysia, but because of the last mile, one has no choice but to use TM. TM abuses this privilege by collecting RM29 per month, every month from every single subscriber for “telephone rental”. If the last mile is broken (and I bet Maxis will do it) TM will end up being like Proton.

Why my digression to TM – if you look at the telecoms market, it is growing, but TM’s slice is shrinking ( I think). Same for Proton, the overall market for motorization has been growing but Proton share has been shrinking and it didn’t pay attention to it. Proton has now hit a negative tipping point that will cause an increase the rate of decline.

Proton has to fix 3 fundamental issues :

a. strip out cost – FAST.

b. win over customers hearts and minds – FASTER

c. New Shareholding and leadership at Board and Management – FASTEST

A saying which I always use, – the people who have lost you money are not the people who are going to make you money!

Datuk Idris Jala – your Datukship was hard earned. Well done

Datuk Syed Zainal – your Datukship was hard earned too, lets not forget the good work you did in Perodua. Well done.

 
1 Comment

Posted by on June 5, 2007 in Business, Leadership, Transformation

 

One response to “Proton and MAS simillar but not the same….

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