Do We Really Need A Third National Car? (Moral of the Story)
The simple answer?
No, if we want to see results within the next five years. Yes, if we want to see results after 50 years and after going through a financial crisis (either the country or the company). You can choose to read on if you want to.
News spreads fast. It also gets forgotten easily. As average people living average lives, we have our own problems to deal with to keep us preoccupied. Usually major business and political events go over our heads because we’re busy enough trying to make ends meet. It is only when our personal interests are affected that we start to care about what’s going on. And guess what? By the time we start to care, it’s usually too late.
So, we’ve been hearing about the third national car company. They call it the New National Car Project (NNCP). I like to call it P3. With the help of social media, it’s quite easy to see that people have mixed feelings about P3 – mostly doubt (of not using taxpayer money) and hatred towards protectionism. MITI stated that P3 would be…
“…fully driven by the private sector and the government would only give selected assistance based on the capabilities of the company involved.”
What makes a National Car a National Car?
Is it government involvement? Or is it just because a car company was founded in a particular country? I think both. It is very hard for a private automobile company to succeed on its own. There will be help from the government in one form or another. It’s just too big of an industry for the government not to get involved with. Korea, for example, introduced the “Automotive Industry Promotion Policy” in 1962 to help its domestic brands like Kia, Hyundai, and Ssangyong. Talking about Korea…
Let’s take a look at the Koreans
To those of you who think that Hyundai and Kia have been around as long as Proton, they’ve actually been around for much longer (Since the late 60s). And they started out as assemblers. Kia for Mazda and Hyundai for Ford. Foreign car companies could not enter the Korean market unless they had a joint venture with a local industry.
Hyundai had already exported a total of 1 million cars to U.S. by 1990. Proton had only started in 1983. Hyundai started investing heavily in research in the late 90s. But the results were not immediate. The early 2000s wasn’t a time when Hyundai had desirable cars. Neither did Kia. It is only in the recent years (2010 -onward) that brands like Hyundai and Kia have become somewhat desirable (Kia Stinger). They’re already making electric cars too (like the Hyundai Kona).
Moral of the story
Even if you pump in money for R&D, the results are not immediate. Also, protectionism kind of helps.
What about the Japanese?
There are a lot of Japanese car brands. And in the early years, the Japanese Government passed the “Automobile Manufacturing Industry Law” (1936) to promote the domestic auto industry and reduce foreign competition. Again, government assistance.
When were the first
Although not much, exports began in the 50s and increased exponentially in the 60s. And now Japanese cars are everywhere, even in desserts.
What caused the success of Japanese cars abroad?
Japanese cars were usually cheaper, smaller, had smaller engines, were more fuel efficient, and cost less to produce than their American rivals. They were also more reliable.
Japanese cars were very experimental in the 80s and 90s. These days they make what the market really wants – convenient personal transportation devices. Not piston-less engines, not family sedans with active yaw control, and not cars with 4-wheel steering.
The Japanese industry has many players, creating fierce domestic competition. That itself has accelerated the progress of it all. There’s a healthy amount of choice for Japanese people shopping for Japanese cars. The market decides if an idea is bullshit. If you made something terrible, people just wouldn’t buy it.
Has this helped give
jobs to Japanese people?
Yes. It has even created an aftermarket industry where even more jobs are created.
And just to put it out there, even Toyota, the automotive giant, asked for a 200 billion Yen loan from the Japanese Government in 2009 due to a financial setback.
Moral of the story
key. Make what the market wants. Good domestic competition also helps. And no matter how big of a car company you
are, you will one day need to borrow money from the government.
What about the Germans?
By 1901, Germany was already producing around 900 cars a year.
And then the Great Depression happened.
Many players had to back out and only several remained. Volkswagen was founded by the German Labour Front under Adolf Hitler and the Volkswagen Beetle was launched in 1937 Obvious government involvement there.
And then World War II happened.
And then Germany was in huge debt (with other countries).
And then The London agreement happened.
What was agreed?
That Germany only had to pay their debt while West Germany ran a trade surplus. And payments were limited to 3% of export earnings.
So, this was a massive incentive for countries that Germany owed money to, to import goods from Germany.
And guess what they
imported from Germany?
By 1955, Volkswagen had already made 1,000,000 Beetles. Malaysia had not even achieved her independence yet.
Both Volkswagen and BMW have been through financial difficulties but they managed to pull through. By the 80s, 90s and 2000s, VW and BMW were making major acquisitions internationally. Mainly assembly plants and other companies. Volkswagen acquired SEAT, Audi, Bentley, Bugatti, Porsche, and Lamborghini. BMW on the other hand, acquired the British Rover Group, and Rolls Royce Motor Cars.
So, Volkswagen, a company founded in 1937, finally had its streak of acquisitions 50 years down the line. BMW, founded in 1916, also after so many years, finally making big acquisitions.
Moral of the story
A devastating loss could be a blessing in disguise. And success takes a long time. On a side note, if you’re cheating on your exam, don’t get caught.
What about the British Automotive Industry?
It’s not great.
Moral of the story
You’re not always at the top of the food chain.
What about the Americans?
America is a big market. And the three big names are Ford, General Motors, and Chrysler. GM was founded in 1908 as a holding company, and went bankrupt in 2009. GM was already asking for government aid before the bankruptcy. There’s a “New GM” now which is now owned by the United States Treasury, the Canada Development Investment Corporation, the Government of Ontario, Old GM bondholders, and UAW & CAW unions.
What are other instances of government involvement?
Under the “Advanced Technology Vehicles Manufacturing Loan Program” funded by congress in 2008, Ford borrowed 5.9 billion USD to make their vehicle achieve better mileage. Why did they have the program? To reduce dependency on foreign countries for oil.
What about Chrysler?
They were on the verge of bankruptcy in the late 1970s and were saved by a 1.5 billion USD loan by the US Government.
Moral of the story
It’s quite obvious by now that government involvement is unavoidable. A big domestic market itself is a great booster for a car company (more local customers). America now has a 325.7 million population. Malaysia has a 31.62 million population. That’s ten times less people to sell cars to.
Will a National Car Make us a Richer Nation?
If you can export well, yes. Just keep in mind that it's a very long process
If you can’t, forget it. We don’t have a big enough population to sustain that.
If it’s about creating jobs, local assemblies and service centres of foreign brands can help create jobs.
If it’s about reducing imports, why do we want to reduce imports? Imports gives choice to the consumer (which indirectly is a better standard of living for Malaysians)
A car company will need help from the government for it to be able to operate at such a big scale. Government involvement is inevitable, and basically that means taxpayer money is at stake anyway and a financial crisis (for the company) is always possible. If the project were to be successful, it will most likely take more than 50 years to see actual results. I’m not sure how many of us will be patient enough to see that. And who will actually enjoy the fruits of the success? Our children or grandchildren. Or in the short term, an OEM parts supplier from China.