Focus View
Proton should be ruthless with vendors
FocusM team | 02 Feb 2018 00:30
The revelation that national car maker Proton Holdings Bhd is paying as much as 30% above market price for automotive parts is shocking, but not entirely surprising.

There were previous murmurs in the industry about Proton overpaying, sometimes as much as 50% above market price, contributing to its chronic problems. Now that it is officially out in the open, questions must be answered. Did Proton and the government know about this issue and let it fester for so long?

Proton paying at least a 30% premium for parts is no longer a market rumour but a cold, hard fact recently stated by Second Minister of International Trade and Industry Datuk Seri Ong Ka Chuan.

Its new CEO Li Chunrong has given an ultimatum to the national car maker’s parts suppliers to reduce prices by 30% by year-end.

If Proton and the government were aware of this critical issue, they should have tackled the root of the problem immediately instead of showering the ailing car company with more financial aid.

Why did it take Proton’s first foreign CEO to point out the obvious?

China’s Zhejiang Geely Holding Group bought a 49.9% stake in the car maker last year and is beginning to exert its influence to turn around Proton. A key objective is driving down costs.

Proton vendors are already feeling the heat and voicing their concerns that they will be overrun by cheaper Chinese vendors. But that is the name of the game in the automotive industry all over the world – cutthroat competition.

It is good to have a healthy market for local vendors to thrive, but they will have to adapt to an extremely competitive environment. It is the same in other industries where Chinese counterparts are disrupting the previous norms.

Proton should not be held to ransom by its vendors. Instead of mollycoddling them like in the past, it must be more ruthless in dealing with the vendors to get the best products, prices and services. That is the only way for Proton to get back on track, not just domestically but in the international market too.

It should review its list of vendors and call for new bids, if necessary, to get more favourable rates. The less efficient vendors will get weeded out and more innovative ones will survive. Only then will Proton have a chance to regain its past glory.

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