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40 years ago China can’t even CKD a car, how did they overtake Proton and Perodua?


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https://www.wapcar.my/news/40-years-ago-china-can’t-even-ckd-a-car-how-did-they-overtake-proton-and-perodua-31163

40 years ago China can’t even CKD a car, how did they overtake Proton and Perodua?

Hans·Jul 26, 2021 02:07 PM

When Proton was established in 1983, China didn’t even have a single modern car plant. By 1983, when Malaysia had become the first country outside of Germany to assemble a W126 Mercedes-Benz S-Class, China was still clobbering together ‘60s era Soviet sedans.

We were once a rising Asian Tiger. At its peak in FY2010, Proton exported 22,000 cars (including CKD kits), not the highest but it was pretty decent for 100 percent Malaysia-developed products. Our technical competency was ahead of Thailand and Indonesia. 

Export of Proton cars to the UK, early '90s

Today, Proton exports less than 2,000 cars annually.

Meanwhile, Perodua exported 8,000 units in 2014. This has since dropped to just 2,825 cars in 2019.

What happened to Malaysia's automotive industry?

Perodua Myvi is exported to the Indonesia as a Sirion, but sales are limited by import quotas

Also read: Why the Perodua Myvi continues to struggle in export markets?

Meanwhile, China is now the world’s most important car market, selling over 25 million cars annually, and is the world’s capital of EVs.

Once a technological backwater, China is now home to brands like Nio, which challenges the best EVs from BMW and Mercedes-Benz

China's success was not supposed to happened, neither was Malaysia's decline

Critics will say that comparison with China is unfair because of its huge domestic market, which grants it huge economies of scale.

But that’s an overly simplistic view because India (1.38 billion population) is just as big but is still not yet an automotive powerhouse.

Indonesia is the world's fourth most populous country, with over 270 million people but yet its Timor national car project failed.

Remember that 10 million population Sweden is home to Volvo (Trucks), Scania, Volvo Cars, Koenigsegg, and SKF.

Magna Steyr-made G-Class. Austria has a small population of just 9 million, but it does contract manufacturing for many legendary nameplates.

Austria has a population of just 9 million but it is home to Magna Steyr, the world's most famous automotive contract manufacturer. Thanks to its many automotive engineering consultancies and specialist suppliers, it's hard to find a European car that doesn't have input from Austria.

And don't forget that the 6 million population Singapore will be making Hyundai EVs soon.

So while economies of scale is important, the world is too big and too complex for a binary yes/no, right/wrong view. 

Geely's Zeeker 001 is an EV styled like a Porsche Panamera Sport Turismo

To say that China had it easy because of its huge domestic market also glosses over the fact that Chinese companies had to overcome hardships unimaginable by comfortable middle-class Malaysians.

Remember that China endured what's known in history as the 'Century of Humiliation', facing one war after another, from being bullied by Western powers to legalize opium and cede control of its territories, to dealing with its many civil wars, it’s a miracle that China is still intact today.

German, Japanese or Korean? It's Chinese. This is a Changan Uni-T. The company is owned by the Chongqing state government.

When Volkswagen first set up business in China in the 1983, the same year Proton was established, VW found China to have no industrial base to support a modern automotive industry.

STAC's Anting plant in 1983. Posth was shocked at the conditions - parts strewn everywhere, half-completed body shells left outside, broken windows allowed rain to enter

VW executive board member Martin Posth, who was tasked to setup the first modern car factory in China, said in his memoir 1,000 Days in Shanghai, “The building had nothing in common with my understanding of a production facility.”

Shanghai SH760A

Posth was recounting his first visit to the state-owned Shanghai Automobile Tractor Corporation’s (precursor to today’s SAIC) plant in Anting, the site selected for VW to launch its entry into China.

It was the ‘80s but the plant was still producing a Shanghai SH760A, a lightly modified ‘60s era Soviet sedan, using very rudimentary means.

Chinese plants were using ropes and bamboo structures to manually move cars. Compared to China, Malaysian plants were like a sci-fi movie set. All photos taken in 1983

“I couldn’t for the life of me imagine the dilapidated factory producing even a single car that would come near being acceptable, based on our standards,” he added, questioning his bosses at Wolfsburg's rationale on working with the Chinese!

China's rudimentary body shop before VW's entry vs Malaysia's highly automated facilities

Malaysia, once the rising Asian Tiger

Meanwhile, Malaysia has been making modern cars since 1967 – the Volvo 144S, the first country outside of Sweden to build Volvos.

We know how to run car plants and make basic car parts – tyres, air filters, seats, instrument clusters, rubber parts, 12V batteries, windshields and windows, headlights, interior plastics etc.

Swedish Motor Assemblers (now known as Volvo Car Manufacturing Malaysia) in 1967. Even until the '80s, Chinese car plants still couldn't match '60s Malaysia

Our generally English-speaking work force makes it easy for foreign manufacturers to work with us and our economy was booming.

Every major car producing nation had a vehicle assembly operation in Malaysia.

CKD cars in Malaysia in 1981. There were nearly twice as many brands as today.

From the British to the Americans, to the Japanese, Swedes, French, Italians, and German, everyone had local assembly operations here. If you were to go further back, the Australians (Holden) would be represented too.

Only the Koreans were not on the list but that's because they haven't started exporting. 

Also read: Once poorer than Malaysia, how Korea’s car industry progressed further than ours?

Even Dr. Carl Hahn, then Chairman of the Volkswagen Group and one of the most powerful figures in the automotive industry, saw it necessary to pay a visit to Malaysia.

Foreign manufactures found it very easy to invest in Malaysia. Skilled workforce is plenty. Meanwhile, China had very few mechanics outside the military.

We were not just good in manufacturing, Malaysians were running the entire end-to-end cycle of the car business, from financing to after-sales to marketing, and we were known to be among the best in Asia outside of Japan.

Foreign manufacturers could trust skilled Malaysians to run the business. Yes, that's a very young Datuk Seri Ben Yeoh of Bermaz. This was in 1984, when he was with Daihatsu.

The Germans at Daimler were so impressed with Cycle & Carriage that they gave the city of Ipoh, which had one of the highest concentration of Mercedes-Benzes for any city in the world (buoyed by the tin mining boom in the ‘50s), a giant logo to be put on top of the limestone hill at the city’s entrance.

The now-closed down AMIM plant, Shah Alam

Later, they returned to Malaysia to inspect the now defunct AMIM plant in Shah Alam, liked what they saw and moved heavens and mountains to allow Malaysia to become the first country outside of Germany to assemble an S-Class.

The Italians noted City Motors’ marketing prowess. Buoyed by the tin mining boom, the Guilia and the Alfetta were the BMW 3 Series of the '60s and '70s. Malaysia was then one of Alfa Romeo's most important markets in Asia and the first country outside of Italy to use Alfa Romeo as police cars.

PDRM's Alfa Romeo Alfetta. Credit: Alfista Malaysia

In its heydays, Nissan saw Tan Chong as its most influential overseas distributor in Asia.

Meanwhile in China, Posth said that the Chinese weren’t just starting from zero, but below zero.

Machinery was lacking in China then. Modernization of VW's plant in China were done with manual labour.

The only Chinese with a driver’s license were military personnel and nobody outside the military knew how to fix cars, never mind finding a local Chinese who knew anything about running a car company.

VW Santana, the first modern car built in China, 11-April 1983. The first 100 units were made using imported German parts, as a trial to see if the Germans and Chinese could work together. The Shanghai-VW joint venture would only be formalized in 1985

“No matter what you touch, you lay your hands on a dozen of problems,” said Posth. From these extremely difficult beginnings, Posth would lay the foundation to make Volkswagen the No.1 brand in the world’s most important car market.

The same year Shanghai-VW joint venture was formed, Malaysia was already making its own car.

Today, Chinese brands are on their way to catchup with foreign rivals. They are not quite there yet, but are damn close.

What was missing in Malaysia?

Studying the development of China’s automotive industry against Malaysia’s, the biggest difference is not economies of scale (not relevant in ‘80s China), but the lack of meritocracy on our part.

The early days of Proton and Perodua were left under the care of government-appointed bureaucrats who weren’t very good at looking after the interest of Malaysia.

Proton entered a deal with Mitsubishi Motors, paying high royalties but could not export the Proton Saga without the approval of Mitsubishi, so much for being a national car.

Hyundai too relied on Mitsubishi engines for their early models but faced no such export restrictions because this was the first and most important requirement for the Koreans. Hyundai made sure no such nonsense would happen.

Also read: That one time when Proton and Dr. Mahathir were conned into a USA-export deal

As for the first Perodua Kancil, it was based on an older generation Daihatsu Mira that was no longer produced in Japan. Japan had switched to fuel injection engines but Malaysia accepted a deal that involved closing off a portion of the market so Daihatsu could offload its old carburetor engines to Malaysia.

From its first rollout in 1994 until it was discontinued in 2010, Perodua sold a shocking 725,870 units of the Kancil!

One of the pre-conditions for the Volkswagen deal in China was that the car must be of current technology. The Santana (Passat B2) that VW gave China had just been launched in Germany one year earlier.

The other pre-condition was that the joint venture must be funded with foreign currency, since China was too poor to afford more currency outflow.

The game plan for the Chinese was quite simple – invite the foreigners, keep the partnership under tight Chinese control, keep the money within China. The last part was most crucial.

Contract signing between STAC and VW in 1982

China was then too poor to be in any position of bargaining power but they pulled it off anyway. Explaining how they did it requires another post, but the short story is that while Shanghai officials were baiting Volkswagen, their peers in the neighbouring province of Jilin were baiting Toyota (via FAW).

To get a better deal, Shanghai later opened talks with GM, which in 1997, offered SAIC the then-new Buick Century to China, while VW was still flogging its 14-year old Santana.

Beijing was pitting VW against Toyota and GM to get a better deal for China.

In contrast, Malaysia decided that it was a fair deal to block out foreign competition for Mitsubishi (and now Geely) and Daihatsu to profit from Malaysia uncontested.

Whatever few cards the Chinese government had, they played it very well. Which brings us to another point about Chinese government officials.

It’s not about market size or technology, it’s about humans

The Chinese civil service model is quite different from the West. Instead, the Chinese civil works like a private company (ironic given it’s a communist background), where civil servants are graded based on their performance on economic growth of their region, job creation, and more recently, air quality – before they can be promoted (and sometimes, demoted).

One cannot be appointed into a ministerial position until one has proven himself / herself at say, a mayor level. 

Chinese civil service structure. Credit: Eric Li, Ted Talk, A Tale of Two Political Systems

Over in Malaysia, the position of a minister and chairman of GLCs are awarded based political patronage, not their qualifications. Remember Prasarana's gaffe?

Consider the architect of China’s latest national automotive policy, Wan Gang, who until 2018, served as China’s Minister of Science and Technology. He is often credited as the person who made China the world’s capital for EV technology.

Prior to working for the government, Wan was Tongji University’s professor of automotive engineering. He holds a doctorate from Germany’s Technical University of Clausthal, and before that, he was an engineer for Audi AG, serving as program manager for the B5-generation Audi A4.

No permanent protection for China’s ‘national’ brands

Another element of meritocracy in China is its treatment of local car manufacturers.

Chinese manufacturers are protected from foreign competition by a 1994 rule that requires all foreigners looking to set up business in China to form joint ventures (JVs) with local manufacturers, with equity of the foreign company capped at 50 percent – it’s a way to protect local manufacturers, allowing them to quickly learn Western technology.

In 2014, China's Ministry of Industry and Information Technology warned Chinese manufacturers that after 20 years, it is time to remove all protection.

Chinese government will remove all protection for Chinese car manufacturers by 2022.

By 2018, Beijing removed the equity cap for JVs for electrified vehicle. Soon, Tesla started plans to build a plant in Shanghai - the first 100% foreign-owned car plant. Chinese EV models will now have to compete directly with Tesla.

By 2022, the equity cap will be abolished for all vehicle types.

Not only that, import taxes on CBU cars have been slashed from 25 percent to 15 percent. This is inevitable as China needs to ease trade war tensions with USA and Europe.

Turning the attention back to Malaysia, is Proton and Perodua stronger than when it started?

From a domestic sales stand point, yes they are but when judged on merit, they made little progress in exports.

Since two of our biggest brands don’t export much, our local parts suppliers are also not very competitive. According to the last manufacturing census done in 2015, only 167 out of 525 Malaysian parts manufacturers were engaged in exports.

Malaysia has since lost 40% of foreign brands doing CKD

Meanwhile, more foreign brands are pulling out from manufacturing in Malaysia. In the early ’80s, before Proton, Malaysia had 21 foreign brands with CKD operations here. Today, we only have 12, down by nearly half.

Of course, the value of investments from the remaining manufacturers have also increased multiple folds but so have our neighbours Thailand and Indonesia. A child who lives off his parent’s money doesn’t get credit for growing taller right?

Actually, the outcome of Malaysia’s national car and the eventual rise of China was evident from the moment the Proton-Mitsubishi Motors and Shanghai-VW partnership were established.

Kenji Iwabuchi, standing next to Dr. Mahathir

Despite enjoying generous government protection, Proton was losing money, mostly due to rapid increase in Yen value following the signing of the Plaza Accord by France, Germany, USA, UK, and Japan (but the Yen appreciation problem affects everyone equally).

By 1988, 3 years after the Saga’s launch, Dr. Mahathir lost his patience and to keep the program going, he replaced the local management of Proton with Mitsubishi Motor’s Kenji Iwabuchi, and later Mitsuo Hattori - thus defeating the purpose of a national car.

The then Finance Minister Daim Zainuddin reportedly expressed his disappointment with the local managers, saying “If that happens to a Japanese (losing money despite no competition), he commits hara-kiri.” (actually, the correct term is Seppuku).

Meanwhile over in China, Posth’s German colleagues at Wolfsburg would often laugh at his Chinese project by asking him “How are your Chinese Micky Mice getting on?”

Posth saw first-hand how fast Shanghai-VW's Anting plant was catching up with the West

But Posth knew the inevitable outcome, that China will eventually surpass everyone else.

Every German engineer who arrived in China to teach the locals were amazed at their eagerness to learn and catch up with the West.

Xpeng P7 says, "Sorry, BMW i what?"

“The Chinese understood anything that had to do with manual labour in next to no time. In the shortest time imaginable, they were assembling cars better and more quickly than anywhere else in the world – and this has not changed right up to the present day,” he noted in his book, but added to the journey ahead will be long and arduous.

China wasn't the only automotive force that started way behind Malaysia. Korea too had a very difficult start. It emerged from the Korean War as one of the poorest countries in the world. This next post is a story of how Korea’s car industry overtook Malaysia's.

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You know why? China govt aggressively pump money into the car industry, giving incentives and whatever. M'sia govt aggressively siphoned money from the car industry. That is the difference.

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8 minutes ago, Watwheels said:

You know why? China govt aggressively pump money into the car industry, giving incentives and whatever. M'sia govt aggressively siphoned money from the car industry. That is the difference.

ha ha... 

one is looking at short term return benefited to own interest .. while another one is looking at long term return benefited to all..

 

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Motherlovers incoming. 😁

(NSFW, language lol) 

But all joking aside, China has done very well. 

I've always said:

China is the new Korea 

Korea is the new Japan

Japan is the new Germany

Germany is the new Italy 

But China may now be even better than Korea used to be, reliability-wise. Reputationally, still work to be done, but they're catching up. 

India has wasted a big opportunity, as usual. I call it as I see it. 

Edited by Turboflat4
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Good article. Interesting cos mostly before my time. 

Learn from the best. But also have a strategic mindset to benefit the local industry. 

Korean cars also improved a lot though they didn't do much JV? 

Edited by Lala81
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continue the next story

https://www.wapcar.my/news/10028once-poorer-than-malaysia-how-korea’s-car-industry-progressed-further-than-ours-10028

 

Once poorer than Malaysia, how Korea’s car industry progressed further than ours?

Hans·Nov 23, 2020 08:17 AM

Last week, we’ve chronicled how Hyundai grew from a small workshop to a world-class automaker. What was left out however, was the hows and the whys behind the rise of Korea’s car industry, which will be discussed in the following text.

When Malaysia gained its independence, Korea was a failed state. It relied on donations from the US for 70 percent of its budget, and had nothing worth exporting.

Seoul's Han River - 1960 vs today. Economists call it the Miracle of the Han River

In 1960, Malaysia’s (Malaya) GDP per capita was USD 234. South Korea earned just USD 158 - poorer than Ghana (USD 183), Myanmar (USD 190), and even Ethopia (USD 203).

GDP Per Capita (World Bank) - When Malaysia started its National Car Policy in 1983, Korea was on par with Malaysia

Most economists of that era, i.e. white, male ones, dismissed Korea to be a permanent aid recipient. Today, Hyundai is bigger than Honda, Samsung is bigger than Sony, and Hallyu is the new Hollywood.

Hyundai Santa Fe

The first Korean car was not a Hyundai or a Kia, but a 1955 Sibal, made using of surplus parts left behind by US Army’s Willy’s Jeep. The country was too poor to afford cars then, so the company folded not long after that.

Sibal was Korea's first car, started in 1955

Korea’s car industry formally began in 1962, when President Park Chung Hee announced a five-year industrialization plan. Imported cars were banned but local assembly (CKD) projects were encouraged.

The military dictator Park was a controversial leader but few will accuse him of being corrupt. He was feared not just because he ruled with an iron fist, but those who were given government contracts and failed to deliver the job would be permanently struck off his list.

Park worked round the clock to rebuild Korea and was known to make surprise visits to construction sites. Hyundai Motor’s founder Chung Ju Yung, who was given contracts to build roads and bridges before building cars, would sleep at construction sites in his company truck just to keep up with President Park’s demanding schedule.

President Park (second from left) with his wife, at the opening of the Gyeongbu Highway in 1970, built by Hyundai's Chung Ju Yung (right)

In 1962, President Park announced an industrialization plan and banned automotive imports, not because he wanted a Korean national car, but because Korea was desperately short of foreign currency. Even imported cookies and chocolates were banned. Smoking imported cigarettes was seen as a national crime.

Park didn’t set out to build a national car, but a Korean car. The Korean flag was not pasted on any of the cars.

Ford Cortina, first car assembled by Hyundai Motor

Manufacturing licenses and government loans given were tied to export targets. While the domestic manufacturers were protected from foreign competition, they still had to compete domestically. These were the biggest differences with Mahathir’s national car policy.

Hyundai Galloper was a rebadged Mitsubishi Pajero

Four companies took up the challenge – Hyundai Motor, Shinjin Motors, Kia Motor, and Asia Motors. Each learned about manufacturing by partnering with foreign manufacturers to establish CKD projects.

Bus manufacturer Shinjin Motors was the first to sign up, in 1964. It partnered with Toyota to assemble the Corona.

Shinjin-assembled Toyota Coronas (Image: Stephen Booth)

In the next 10 years, Shinjin Motors, which later became Daewoo, would become the dominant player.

Daewoo’s undoing was the ’97 Asian Financial Crisis. The chaebol collapsed and Daewoo Motors was sold to GM, where it now exists as nothing more than an Asian engineering centre for GM.

1997 Daewoo Leganza was the peak of Daewoo. Urban legend says it's a production version of Italdesign's Jaguar Kensington concept, which was rejected by Jaguar

Asia Motors was established in 1965, first partnered with Fiat to assemble the Fiat 124. It was later absorbed into Kia.

Kia was building three-wheelers for Mazda before building cars

Kia was a bicycle maker that teamed up with Honda in 1961 to produce motorcycles. Later, it worked with Mazda to produce three-wheeler light trucks, before making the Mazda Familia, in 1974, which Kia would sell as the Kia Brisa.

Kia Brisa, a rebadged Mazda Familia, was Kia's first car

Kia was the first Korean car maker to export – the Kia Brisa truck, in 1975.

The formation of Hyundai Motor in 1967 to do contract assembly of Ford Cortinas was already discussed in detail last week so you can read them here.

Kia Brisa Truck, a rebadged Mazda Familia Truck, was Korea's first car export

Part of the reason why Hyundai had such a poor reputation for quality in its early years was simply because the company had no choice but to export even before it was ready.

Remember that Korea desperately needed foreign currency and President Park couldn’t wait until Hyundai acquired sufficient knowledge before exporting.

Hyundai Pony was Korea's first self-developed car - designed by Italdesign, powered by a MItsubishi engine

By early ‘70s, President Park directed Korean automakers to produce a low cost ‘people’s car,’ with engine capacity no more than 1,500 cc.

Asia Motors couldn’t meet the target and President Park kept to his word and withdrew Asia Motors’ manufacturing license, and that was the end of the company, snapped up by Kia.

In respond, Daewoo deepened ties with GM’s Opel and Kia with Mazda. The contrarian Hyundai however, risked it all by taking the harder path to build its own model. Chun Ju Yung believed that building Ford Cortinas that didn’t belong to him was not a good business to be in, even though it was easier.

Before making the Pony, Hyundai learned car manufacturing by building Ford Cortinas

Ford had plans to make Hyundai part of its ‘world car’ project. Hyundai would assemble Ford engines into Australia-made Ford chassis, exporting finished cars to Japan. But Chung had no intention of becoming anyone’s contractor. So he parted ways with Ford in 1973, which Ford thought was a stupidly arrogant move by a poor Korean company who didn’t know anything about cars. 

Financed by ultra-low interest loans from President Park, Hyundai contracted Italdesign’s Giorgetto Giugiaro to design the 1975 Hyundai Pony – Korea’s first self-developed car. The flat panels, simple circular headlights, and angular lines made it easy to produce.

Next, they needed someone experienced to run the company. That person was ex-British Leyland’s President George Turnbull, serving as Vice President. Turnbull brought with him six engineers.

Hyundai’s hiring of an experienced Turnbull was crucial in ensuring that Hyundai didn’t get pushed around by its engine supplier Mitsubishi Motors, who wanted Hyundai to accept inferior engines.

In the video below, Turnbull explains the rapid pace that Hyundai is working on, a pace that's unseen in England, due to the intense pressure from President Park to ramp up exports.

Again, this was another difference with Proton, which also relied on Mitsubishi Motors. With an experienced Turnbull on their side, Hyundai made sure it got a fair deal from the Japanese, its one-time oppressors, and maintained full control over its business.

In contrast, Proton paid royalty fees to Mitsubishi Motors but it couldn’t export the Proton Saga without prior approval from the Japanese – a scenario which Hyundai knew would happen if they were not careful. Slowly, the Japanese accepted that the Koreans were no push overs.

Chung Ju Yung (right) with Kubo Tomio, the chairman of Mitsubishi Motors (September 1988)

In its early days, the production line of the Ulsan plant was only running no more than 30 percent of the time because parts didn’t fit and quality was horrendous. But President Park wanted exports ASAP and Chung had little choice but to commit to a 5,000 cars per year export plan.

Hyundai knew the cars would be poorly accepted so to mitigate the risk, the company spread its exports over many countries, selling only a small number in each market.

In Nigeria, the roof liners peeled under the heat. In Saudi Arabia, paints faded, and mechanical problems were reported in nearly every market. Its early venture into USA with the Hyundai Excel in 1985, was a complete disaster.

Still, they kept learning. Korean car makers were under no illusion that the government would protect them from foreign competition forever, and the pressure to export meant that they had to keep improving.

Of course, the downside was that the poor Korean drivers who lived through ‘70s, ‘80s and ‘90s had no choice but to buy rubbish Korean cars. The myth that Koreans bought Korean cars out of patriotic pride was only half true. They didn’t had any choice to begin with.

The Korean government lifted the ban on imports in 1986, but introduced a 60 percent import duty. Foreign brands were subjected to excessive scrutiny - unnecessary paperwork, compliance to odd regulations, all aimed to make things difficult for foreign players.

Even showroom sizes were limited, as were TV air time. Buyers of foreign cars were also subjected to unnecessary income tax audits.

10 years ago, product placement of foreign cars on K-dramas were done without badges, thus it's technically not an advertisement, allowing companies to skirt around air time limits

Overtime, these practices had to be pulled back before other countries agreed to accept more imports from Korea.

Today, the Korean car market is an open one and complies with WTO requirements. Free trade agreements with the US and EU means that US-made Toyotas and Volkswagens, as well as Germany-made Audis and Mercedes-Benzes can now enter the market freely.

Kia Optima

Last year, Mercedes-Benz Korea was the top import brand, selling nearly 80,000 cars – 8 times more than Malaysia. Korea is now Mercedes-Benz’s fifth biggest market.

Mainstream foreign brands are still not popular there though, because Korean buyers see little reason to buy a Toyota/Honda/Volkswagen when a domestic Hyundai or a Kia is already this good.

Of course, we also can’t discount the fact that Korea’s bigger population – nearly 52 million today, 38 million in 1980, versus Malaysia’s 32 million today and 14 million in 1980 - allows it to support a more competitive domestic car manufacturing industry.

Still, let’s not make excuses for ourselves. For decades, Sweden supported Volvo (and Saab) with a population of less than 10 million because it grew its export market.

Malaysia got lucky in the ‘80s and '90s. Hot money was flowing into the region and when high tide came, even the weakest boat floats. All our neighbours were also growing rapidly. That era of easy money is now over.

Proton’s business goals were muddled by political ambitions, and at its peak, it was never held accountable for the many benefits it enjoyed. The only consolation is that it's now better managed under Geely, just don't call it a national car.

In Korea, President Park kept businessman who benefitted from government contracts on a tight leash, cutting them off when they fail.

The Koreans are driven by a deep desire to beat the Japanese, under which Korea once suffered great humiliation. Even though Hyundai had to cooperate with Mitsubishi Motors out of a practical need when it first started, they never forgot the past.

If there is one thing North and South Korea will cheer for each other, it is when either country’s national football team is competing against Japan.

Chung Ju Yung once said in an interview, “We have a competitive mind like the Japanese. But in some ways, we think we are cleverer than they are. We think we have better brains. That’s why so many Koreans excel when they attend American universities.”

Hyundai Sonata N-Line

For the Koreans, beating the Japanese is not just about attaining business leadership, it’s about seeking revenge and getting even on the humiliation they once suffered. When your rival’s motivation goes beyond money, competition will be extremely tough.

Interior of the Hyundai Elantra

That’s the other factor that is missing from Malaysia’s (or Britain's) automotive players, a deep competitive desire to do better than others, rather than just merely completing a job given to us. Like Turnbull said in the video, it all goes back to the differences in attitude.

Fun fact: Korea has a long history in innovation. The Cheomseongdae astronomical observatory is one of the world’s oldest. The Sungkyunkwan University, established in 1398, is the oldest in Asia.

In 1429, the Nongsa jikseol was probably the world’s first manuscript on farming methods, distributed to farmers, many whom knew how to read the Hangul text, a simplified text developed by King Sejong for commoners. The 1445 Uibang Yuch’wi was an ancient encyclopedia of medicine, as was the T’aesan Yorok’ medical text on pregnancy and childbirth.

Admiral Yi's 'turtle ship' - the world's first armoured ship

The Korean ‘Turtle Ship’ was the world’s first armoured vessel, used by the fabled Admiral Yi to defend Korea against Japan.

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3 minutes ago, Turboflat4 said:

Motherlovers incoming. 😁

(NSFW, language lol) 

But all joking aside, China has done very well. 

I've always said:

China is the new Korea 

Korea is the new Japan

Japan is the new Germany

Germany is the new Italy 

But China may now be even better than Korea used to be, reliability-wise. Reputationally, still work to be done, but they're catching up. 

India has wasted a big opportunity, as usual. I call it as I see it. 

India is just a tool make by western to suppress the grow of China.... same like Vietnam industry.. 

This is what i observe and opinion... 

 

 

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5 minutes ago, Contipro said:

India is just a tool make by western to suppress the grow of China.... same like Vietnam industry.. 

This is what i observe and opinion... 

 

 

India is not "made" by anyone. It is a very ancient culture, just like China. India has its strengths and will grow at its own pace but is being manipulated by outsiders. 

China is very, very far from being innocent or benign. 

Edited by Turboflat4
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i think not just car 

look at how china build tunnels, highways and bridges, highspeed trains, drones, 5G (controversy), etc

in the internet space ... there is FAANG and there is chinese-FAANG for matching

the amdk still sleeping and fighting who should be the next POTUS

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Agree.. which is why we dun see much Peroduas and Proton here. Even the cash-strapped buyers rather go for COE-renewed conti/jap car or korean cars  🤣

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2 minutes ago, Ceecookie said:

Agree.. which is why we dun see much Peroduas and Proton here. Even the cash-strapped buyers rather go for COE-renewed conti/jap car or korean cars  🤣

I love Renew coe!! 💪

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Well, China learn from those car manufacturing joint-ventures and siphoned off the technology.

Last few decades China legislated that car makers producing cars in China are required to form joint-ventures with local companies.

Might be they learn the tricks from there on.

In China, many foreign automotive brands have to used joint-venture names like "Shanghai-Volkswagen", "Huacheng BMW", "Chang-an Mazda", "Dongfeng Nissan", "Beijing Hyundai", "Guang-Qi Toyota" etc etc in their ad or marketing.

Well, there are some forced transfers of technology and then some reverse engineering...

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1 hour ago, Contipro said:

Important of Leadership and people mindset.. 

https://www.wapcar.my/news/40-years-ago-china-can’t-even-ckd-a-car-how-did-they-overtake-proton-and-perodua-31163

40 years ago China can’t even CKD a car, how did they overtake Proton and Perodua?

Hans·Jul 26, 2021 02:07 PM

When Proton was established in 1983, China didn’t even have a single modern car plant. By 1983, when Malaysia had become the first country outside of Germany to assemble a W126 Mercedes-Benz S-Class, China was still clobbering together ‘60s era Soviet sedans.

We were once a rising Asian Tiger. At its peak in FY2010, Proton exported 22,000 cars (including CKD kits), not the highest but it was pretty decent for 100 percent Malaysia-developed products. Our technical competency was ahead of Thailand and Indonesia. 

Export of Proton cars to the UK, early '90s

Today, Proton exports less than 2,000 cars annually.

Meanwhile, Perodua exported 8,000 units in 2014. This has since dropped to just 2,825 cars in 2019.

What happened to Malaysia's automotive industry?

Perodua Myvi is exported to the Indonesia as a Sirion, but sales are limited by import quotas

Also read: Why the Perodua Myvi continues to struggle in export markets?

Meanwhile, China is now the world’s most important car market, selling over 25 million cars annually, and is the world’s capital of EVs.

Once a technological backwater, China is now home to brands like Nio, which challenges the best EVs from BMW and Mercedes-Benz

China's success was not supposed to happened, neither was Malaysia's decline

Critics will say that comparison with China is unfair because of its huge domestic market, which grants it huge economies of scale.

But that’s an overly simplistic view because India (1.38 billion population) is just as big but is still not yet an automotive powerhouse.

Indonesia is the world's fourth most populous country, with over 270 million people but yet its Timor national car project failed.

Remember that 10 million population Sweden is home to Volvo (Trucks), Scania, Volvo Cars, Koenigsegg, and SKF.

Magna Steyr-made G-Class. Austria has a small population of just 9 million, but it does contract manufacturing for many legendary nameplates.

Austria has a population of just 9 million but it is home to Magna Steyr, the world's most famous automotive contract manufacturer. Thanks to its many automotive engineering consultancies and specialist suppliers, it's hard to find a European car that doesn't have input from Austria.

And don't forget that the 6 million population Singapore will be making Hyundai EVs soon.

So while economies of scale is important, the world is too big and too complex for a binary yes/no, right/wrong view. 

Geely's Zeeker 001 is an EV styled like a Porsche Panamera Sport Turismo

To say that China had it easy because of its huge domestic market also glosses over the fact that Chinese companies had to overcome hardships unimaginable by comfortable middle-class Malaysians.

Remember that China endured what's known in history as the 'Century of Humiliation', facing one war after another, from being bullied by Western powers to legalize opium and cede control of its territories, to dealing with its many civil wars, it’s a miracle that China is still intact today.

German, Japanese or Korean? It's Chinese. This is a Changan Uni-T. The company is owned by the Chongqing state government.

When Volkswagen first set up business in China in the 1983, the same year Proton was established, VW found China to have no industrial base to support a modern automotive industry.

STAC's Anting plant in 1983. Posth was shocked at the conditions - parts strewn everywhere, half-completed body shells left outside, broken windows allowed rain to enter

VW executive board member Martin Posth, who was tasked to setup the first modern car factory in China, said in his memoir 1,000 Days in Shanghai, “The building had nothing in common with my understanding of a production facility.”

Shanghai SH760A

Posth was recounting his first visit to the state-owned Shanghai Automobile Tractor Corporation’s (precursor to today’s SAIC) plant in Anting, the site selected for VW to launch its entry into China.

It was the ‘80s but the plant was still producing a Shanghai SH760A, a lightly modified ‘60s era Soviet sedan, using very rudimentary means.

Chinese plants were using ropes and bamboo structures to manually move cars. Compared to China, Malaysian plants were like a sci-fi movie set. All photos taken in 1983

“I couldn’t for the life of me imagine the dilapidated factory producing even a single car that would come near being acceptable, based on our standards,” he added, questioning his bosses at Wolfsburg's rationale on working with the Chinese!

China's rudimentary body shop before VW's entry vs Malaysia's highly automated facilities

Malaysia, once the rising Asian Tiger

Meanwhile, Malaysia has been making modern cars since 1967 – the Volvo 144S, the first country outside of Sweden to build Volvos.

We know how to run car plants and make basic car parts – tyres, air filters, seats, instrument clusters, rubber parts, 12V batteries, windshields and windows, headlights, interior plastics etc.

Swedish Motor Assemblers (now known as Volvo Car Manufacturing Malaysia) in 1967. Even until the '80s, Chinese car plants still couldn't match '60s Malaysia

Our generally English-speaking work force makes it easy for foreign manufacturers to work with us and our economy was booming.

Every major car producing nation had a vehicle assembly operation in Malaysia.

CKD cars in Malaysia in 1981. There were nearly twice as many brands as today.

From the British to the Americans, to the Japanese, Swedes, French, Italians, and German, everyone had local assembly operations here. If you were to go further back, the Australians (Holden) would be represented too.

Only the Koreans were not on the list but that's because they haven't started exporting. 

Also read: Once poorer than Malaysia, how Korea’s car industry progressed further than ours?

Even Dr. Carl Hahn, then Chairman of the Volkswagen Group and one of the most powerful figures in the automotive industry, saw it necessary to pay a visit to Malaysia.

Foreign manufactures found it very easy to invest in Malaysia. Skilled workforce is plenty. Meanwhile, China had very few mechanics outside the military.

We were not just good in manufacturing, Malaysians were running the entire end-to-end cycle of the car business, from financing to after-sales to marketing, and we were known to be among the best in Asia outside of Japan.

Foreign manufacturers could trust skilled Malaysians to run the business. Yes, that's a very young Datuk Seri Ben Yeoh of Bermaz. This was in 1984, when he was with Daihatsu.

The Germans at Daimler were so impressed with Cycle & Carriage that they gave the city of Ipoh, which had one of the highest concentration of Mercedes-Benzes for any city in the world (buoyed by the tin mining boom in the ‘50s), a giant logo to be put on top of the limestone hill at the city’s entrance.

The now-closed down AMIM plant, Shah Alam

Later, they returned to Malaysia to inspect the now defunct AMIM plant in Shah Alam, liked what they saw and moved heavens and mountains to allow Malaysia to become the first country outside of Germany to assemble an S-Class.

The Italians noted City Motors’ marketing prowess. Buoyed by the tin mining boom, the Guilia and the Alfetta were the BMW 3 Series of the '60s and '70s. Malaysia was then one of Alfa Romeo's most important markets in Asia and the first country outside of Italy to use Alfa Romeo as police cars.

PDRM's Alfa Romeo Alfetta. Credit: Alfista Malaysia

In its heydays, Nissan saw Tan Chong as its most influential overseas distributor in Asia.

Meanwhile in China, Posth said that the Chinese weren’t just starting from zero, but below zero.

Machinery was lacking in China then. Modernization of VW's plant in China were done with manual labour.

The only Chinese with a driver’s license were military personnel and nobody outside the military knew how to fix cars, never mind finding a local Chinese who knew anything about running a car company.

VW Santana, the first modern car built in China, 11-April 1983. The first 100 units were made using imported German parts, as a trial to see if the Germans and Chinese could work together. The Shanghai-VW joint venture would only be formalized in 1985

“No matter what you touch, you lay your hands on a dozen of problems,” said Posth. From these extremely difficult beginnings, Posth would lay the foundation to make Volkswagen the No.1 brand in the world’s most important car market.

The same year Shanghai-VW joint venture was formed, Malaysia was already making its own car.

Today, Chinese brands are on their way to catchup with foreign rivals. They are not quite there yet, but are damn close.

What was missing in Malaysia?

Studying the development of China’s automotive industry against Malaysia’s, the biggest difference is not economies of scale (not relevant in ‘80s China), but the lack of meritocracy on our part.

The early days of Proton and Perodua were left under the care of government-appointed bureaucrats who weren’t very good at looking after the interest of Malaysia.

Proton entered a deal with Mitsubishi Motors, paying high royalties but could not export the Proton Saga without the approval of Mitsubishi, so much for being a national car.

Hyundai too relied on Mitsubishi engines for their early models but faced no such export restrictions because this was the first and most important requirement for the Koreans. Hyundai made sure no such nonsense would happen.

Also read: That one time when Proton and Dr. Mahathir were conned into a USA-export deal

As for the first Perodua Kancil, it was based on an older generation Daihatsu Mira that was no longer produced in Japan. Japan had switched to fuel injection engines but Malaysia accepted a deal that involved closing off a portion of the market so Daihatsu could offload its old carburetor engines to Malaysia.

From its first rollout in 1994 until it was discontinued in 2010, Perodua sold a shocking 725,870 units of the Kancil!

One of the pre-conditions for the Volkswagen deal in China was that the car must be of current technology. The Santana (Passat B2) that VW gave China had just been launched in Germany one year earlier.

The other pre-condition was that the joint venture must be funded with foreign currency, since China was too poor to afford more currency outflow.

The game plan for the Chinese was quite simple – invite the foreigners, keep the partnership under tight Chinese control, keep the money within China. The last part was most crucial.

Contract signing between STAC and VW in 1982

China was then too poor to be in any position of bargaining power but they pulled it off anyway. Explaining how they did it requires another post, but the short story is that while Shanghai officials were baiting Volkswagen, their peers in the neighbouring province of Jilin were baiting Toyota (via FAW).

To get a better deal, Shanghai later opened talks with GM, which in 1997, offered SAIC the then-new Buick Century to China, while VW was still flogging its 14-year old Santana.

Beijing was pitting VW against Toyota and GM to get a better deal for China.

In contrast, Malaysia decided that it was a fair deal to block out foreign competition for Mitsubishi (and now Geely) and Daihatsu to profit from Malaysia uncontested.

Whatever few cards the Chinese government had, they played it very well. Which brings us to another point about Chinese government officials.

It’s not about market size or technology, it’s about humans

The Chinese civil service model is quite different from the West. Instead, the Chinese civil works like a private company (ironic given it’s a communist background), where civil servants are graded based on their performance on economic growth of their region, job creation, and more recently, air quality – before they can be promoted (and sometimes, demoted).

One cannot be appointed into a ministerial position until one has proven himself / herself at say, a mayor level. 

Chinese civil service structure. Credit: Eric Li, Ted Talk, A Tale of Two Political Systems

Over in Malaysia, the position of a minister and chairman of GLCs are awarded based political patronage, not their qualifications. Remember Prasarana's gaffe?

Consider the architect of China’s latest national automotive policy, Wan Gang, who until 2018, served as China’s Minister of Science and Technology. He is often credited as the person who made China the world’s capital for EV technology.

Prior to working for the government, Wan was Tongji University’s professor of automotive engineering. He holds a doctorate from Germany’s Technical University of Clausthal, and before that, he was an engineer for Audi AG, serving as program manager for the B5-generation Audi A4.

No permanent protection for China’s ‘national’ brands

Another element of meritocracy in China is its treatment of local car manufacturers.

Chinese manufacturers are protected from foreign competition by a 1994 rule that requires all foreigners looking to set up business in China to form joint ventures (JVs) with local manufacturers, with equity of the foreign company capped at 50 percent – it’s a way to protect local manufacturers, allowing them to quickly learn Western technology.

In 2014, China's Ministry of Industry and Information Technology warned Chinese manufacturers that after 20 years, it is time to remove all protection.

Chinese government will remove all protection for Chinese car manufacturers by 2022.

By 2018, Beijing removed the equity cap for JVs for electrified vehicle. Soon, Tesla started plans to build a plant in Shanghai - the first 100% foreign-owned car plant. Chinese EV models will now have to compete directly with Tesla.

By 2022, the equity cap will be abolished for all vehicle types.

Not only that, import taxes on CBU cars have been slashed from 25 percent to 15 percent. This is inevitable as China needs to ease trade war tensions with USA and Europe.

Turning the attention back to Malaysia, is Proton and Perodua stronger than when it started?

From a domestic sales stand point, yes they are but when judged on merit, they made little progress in exports.

Since two of our biggest brands don’t export much, our local parts suppliers are also not very competitive. According to the last manufacturing census done in 2015, only 167 out of 525 Malaysian parts manufacturers were engaged in exports.

Malaysia has since lost 40% of foreign brands doing CKD

Meanwhile, more foreign brands are pulling out from manufacturing in Malaysia. In the early ’80s, before Proton, Malaysia had 21 foreign brands with CKD operations here. Today, we only have 12, down by nearly half.

Of course, the value of investments from the remaining manufacturers have also increased multiple folds but so have our neighbours Thailand and Indonesia. A child who lives off his parent’s money doesn’t get credit for growing taller right?

Actually, the outcome of Malaysia’s national car and the eventual rise of China was evident from the moment the Proton-Mitsubishi Motors and Shanghai-VW partnership were established.

Kenji Iwabuchi, standing next to Dr. Mahathir

Despite enjoying generous government protection, Proton was losing money, mostly due to rapid increase in Yen value following the signing of the Plaza Accord by France, Germany, USA, UK, and Japan (but the Yen appreciation problem affects everyone equally).

By 1988, 3 years after the Saga’s launch, Dr. Mahathir lost his patience and to keep the program going, he replaced the local management of Proton with Mitsubishi Motor’s Kenji Iwabuchi, and later Mitsuo Hattori - thus defeating the purpose of a national car.

The then Finance Minister Daim Zainuddin reportedly expressed his disappointment with the local managers, saying “If that happens to a Japanese (losing money despite no competition), he commits hara-kiri.” (actually, the correct term is Seppuku).

Meanwhile over in China, Posth’s German colleagues at Wolfsburg would often laugh at his Chinese project by asking him “How are your Chinese Micky Mice getting on?”

Posth saw first-hand how fast Shanghai-VW's Anting plant was catching up with the West

But Posth knew the inevitable outcome, that China will eventually surpass everyone else.

Every German engineer who arrived in China to teach the locals were amazed at their eagerness to learn and catch up with the West.

Xpeng P7 says, "Sorry, BMW i what?"

“The Chinese understood anything that had to do with manual labour in next to no time. In the shortest time imaginable, they were assembling cars better and more quickly than anywhere else in the world – and this has not changed right up to the present day,” he noted in his book, but added to the journey ahead will be long and arduous.

China wasn't the only automotive force that started way behind Malaysia. Korea too had a very difficult start. It emerged from the Korean War as one of the poorest countries in the world. This next post is a story of how Korea’s car industry overtook Malaysia's.

What is CKD ah?

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1 minute ago, kobayashiGT said:

What is CKD ah?

What is a CKD Car?

CKD (Completely Knocked Down) cars, on the other hand, refer to cars that are assembled at a local manufacturing company. Usually, models that are sold in Malaysia are locally assembled and this allows them to qualify for the government's incentives, as well as exemptions on excise duties

 

(credit to google)

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Just now, Contipro said:

What is a CKD Car?

CKD (Completely Knocked Down) cars, on the other hand, refer to cars that are assembled at a local manufacturing company. Usually, models that are sold in Malaysia are locally assembled and this allows them to qualify for the government's incentives, as well as exemptions on excise duties

 

(credit to google)

thank you! Appreciate your effort!

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3 minutes ago, DOBIEMKZ said:

Well, China learn from those car manufacturing joint-ventures and siphoned off the technology.

Last few decades China legislated that car makers producing cars in China are required to form joint-ventures with local companies.

Might be they learn the tricks from there on.

In China, many foreign automotive brands have to used joint-venture names like "Shanghai-Volkswagen", "Huacheng BMW", "Chang-an Mazda", "Dongfeng Nissan", "Beijing Hyundai", "Guang-Qi Toyota" etc etc in their ad or marketing.

Well, there are some forced transfers of technology and then some reverse engineering...

ha ha.. China suck in technological knowledge..

While Malaysia government suck in money and go KTV have fun.. leaving shit to "rakyat".. 

 

 

 

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no country can beat singapore la. not the amdk, not china, no 1 stand a chance.

when come to number 1 in the most expensive car price in the world😆

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