This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

THE Proton Vendors Association (PVA), which comprises 77 companies and is recognised as a representative of the automotive components sector in Malaysia, has written to Proton Holdings Bhd, complaining of issues that have been adversely affecting their bottom lines because of an increase in operating costs.

In a copy of the letter dated Oct 23 that was sighted by The Edge, PVA says several members have complained about the unwillingness of Proton Holdings to undertake price adjustments.

The letter, signed by PVA president Thomas Lim Teck Ling, says, “Even the simple higher minimum wage sanctioned by the Malaysian government in May 2022 has yet to be given full consideration.”

At the end of the letter, PVA says “even the agreed minimum manpower rate of RM13.80 from the last meeting has been now arbitrarily reduced to RM13 without consultation”.

Proton Holdings in response to questions from The Edge says, “Proton Holdings has received the letter, and a discussion has taken place with PVA. At this time, Proton Holdings maintains its policy of not commenting on ongoing internal discussions.

“Our commitment to fostering fair and constructive dialogue with our partners remains steadfast, and we are dedicated to resolving any issues that may have arisen.

“Moreover, it is essential to highlight that over the span of 40 years, Proton Holdings has demonstrated steady growth. Our purchase value has doubled from 2018 to 2022, and our sales volume has consistently increased year on year for the past five years. This remarkable progress is a testament to our effective ecosystem management, solid compliance, adherence to policies and business principles, as well as our ability to resolve issues with partners and vendors amicably.”

Members of PVA are units of large outfits such as UMW Holdings Bhd, Sime Darby Bhd, Sapura group, Pecca Group Bhd, APM Automotive Holdings Bhd, which is part of the Tan Chong group of companies, and EP Manufacturing Bhd.

Executives of auto companies seem divided, however, on PVA’s grouses.

Many market watchers are unsympathetic towards the vendors because, in the past, many were said to have benefited from their political connections.

A director of an auto company says, “You can’t lump all the vendors together, there are some genuine cases, there are some valid complaints. Proton [Holdings] has been slow in acknowledging the rise in commodity prices … but I hear they are sorting it out.”

He adds, “Proton [Holdings] is very China-centric; they measure performance based on Chinese vendor standards, their expectations are high, but the fact is they can source parts for cheaper from Thailand and China. So, our guys [vendors] may need to buck up … The relationship [between Proton Holdings and vendors] is symbiotic, though. There is an interdependence, so it’s best if things are sorted out soon.”

A former high-ranking official of an auto company says the management of Proton Holdings is focused on the company’s bottom line. Unlike in the past, the company was government-controlled, it is today 50.1%-controlled by businessman Tan Sri Syed Mokhtar Albukhary’s DRB Hicom Bhd and 49.9%-controlled by China’s Zhejiang Geely Holding Group Co Ltd.

“I know the Proton [Holdings] management is profit-driven, but why shouldn’t they be?” he asks.

It is noteworthy that in June 2016, the government approved a soft loan of RM1.5 billion to ensure that Proton Holdings remained sustainable, providing jobs for 12,000 direct employees and another 50,000 employees along the local automotive supply chain. The government subscribed to RM1.25 billion worth of new redeemable convertible cumulative preference shares (RCCPS) in Proton Holdings through Govco Holdings Bhd, which is wholly owned by Minister of Finance Inc.

In the government’s announcement, it is stated that after a grace period of five years, Proton was to pay dividends as well as repay the RCCPS. Checks with SSM indicate, however, that Govco still holds 1.2 billion RCCPS in Proton Holdings.

Another auto company official says: “Basically, the [Proton Holdings] management has cracked the whip — some may say too hard on the vendors, but it is a moot point. But, then again, this strained relationship is not new; it’s been going on for at least 18 months, from what I know. So, the two — Proton Holdings and PVA — should resolve things quickly.”

A third auto official whom The Edge spoke to is more sympathetic to PVA and says Proton Holdings’ drastically fluctuating order levels have resulted in much hardship for the vendors, who have difficulty with budgeting as well as allocating resources. 

“It seems that things with Perodua (Perusahaan Otomobil Kedua Sdn Bhd) are much better, more consistent,” he says.

The letter written by PVA states that the drastic drop in orders for Proton’s X70 and X50 models from a year ago left many PVA members carrying inventories.

“In short, vendors are facing situations in which they have to allocate additional resources and manpower to manage Proton [Holdings’] unpredictability, causing increases in operational costs and unnecessary losses,” the letter reads.

In a nutshell, PVA is accusing Proton of failing to address the cost impact faced by vendors and states that, in the long run, stable and consistent supply to Proton would be disrupted, if nothing changes.

A check with industry players indicates that logistics and raw material costs have gone up, as with the minimum wage, which was raised to RM1,500 per month, from RM1,200 previously, in July this year.

The PVA members also claim that Proton Holdings’ group technical procurement, “had failed to provide vendors with fair and consistent solutions to mitigate cost pressures”.

The letter by PVA also claims that threats by Proton to source completely knocked down (CKD) replacements of their products if target prices are not met has further strained the relationship between Proton Holdings and the vendors.

The former high-ranking official of an auto company says, however, that there are also cases in which there are many layers between Proton Holdings and its vendors, which increases costs, as all the different layers seek to make a profit.

While PVA is up in arms, Proton Holdings chalked up an after-tax profit of RM201.58 million for its financial year ended December 2022, on the back of RM9.39 billion in revenue. During the period under review, Proton Holdings had total assets of RM8.08 billion and total liabilities of RM4.91 billion. The company had accumulated losses of RM1.91 billion as at end-2022, compared to RM2.1 billion in the previous year.

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