In 2006 Geely wanted to invest RM 100m in Malaysia, who rejected it to protect Proton and Perodua

For many Malaysians, Geely is a brand that’s synonymous with Proton. The Chinese brand that in June 2017, came out of nowhere to become a permanent fixture in our collective consciousness, owning 49.9 percent of our national carmaker.

But what if I tell you that Proton is actually Geely’s second attempt to enter Malaysia?

Back in 2006, Geely came to Malaysia to partner with alloy wheel manufacturer Tan Sri Cam Soh, whose Alado Bumi Sdn. Bhd. had already gained some traction with Chery, to invest in a local assembly (CKD) operation.

To do this, Geely partnered with Soh’s other company Information Gateway Corp Sdn Bhd (IGC). IGC is to contract Johor Bahru’s Oriental Assemblers to build 10,000 Geely cars per year.

Oriental Assemblers - who were they?

Located in Jalan Tampoi in Johor Bahru, Oriental Assemblers was once a General Motors plant making Vauxhall / Opel models, before the American firm sold it in 1980.

Most Malaysians however will remember Oriental Assemblers as the company that built Honda cars between the ‘70s and the late ‘90s, when its sister company Kah Motor was the franchise holder for Honda cars in Malaysia.

Honda Malaysia would later take over the distributorship from Kah Motor in November 2000 and by 2003, production of Honda cars were transferred to Honda’s own Pegoh plant in Melaka.

After that, Oriental Assemblers switched to assembling Hyundai cars, which were sold under its sister-company Oriental-Hyundai’s Kah Bintang dealer network, and briefly, contract manufacturing for Mercedes-Benz cars until Mercedes-Benz Malaysia (then known as DaimlerChrysler Malaysia, taking over from Cycle and Carriage Bintang) setup its own plant in 2005.

Today, Oriental Assemblers is owned by the Berjaya group, renamed to Berjaya Assembly Sdn. Bhd. It now does contract assembly for Maxus and a few other local rebadged Chinese light commercial vehicles.   

Geely’s offer to Malaysia

Back to Geely. The proposed investment was worth a not-very-small RM 100 million. Geely wants to make Malaysia its right-hand drive assembly hub, eventually exporting to 42 right-hand drive countries.

Contract manufacturing at the Oriental Assemblers plant was only the start. A new dedicated plant for Geely was to be considered further down the line.

The plan was to CKD the Geely CK1, a very ugly, badly copied W203 Mercedes-Benz C-Class, which was stilll current then.

Malaysia’s response to Geely

The mid-2000s was a period when Malaysian policy makers were adapting to the ASEAN Free Trade Agreement (AFTA) - now superseded by ATIGA (ASEAN Trade in Goods Agreement) – that it had signed with Thailand and Indonesia.

Import duties for cars with at least 40 percent regional content were abolished but the sneaky Malaysians secretly plotted to move the goal post back home.

While import duties were indeed slashed, Malaysia raised excise duties for imported cars – essentially keeping prices of cars (and car tax collection) status quo.

Officially, Malaysia says its national car policy is no more but - and it’s a big but - it grants car makers that do R&D here – a thinly veiled reference to Proton and Perodua, since Malaysia is too small for others to do any real R&D here – close to 100% excise duty discount, essentially keeping national car privileges intact while paying lip service to free trade agreements.

Also read: Why is a Proton X70 cheaper than a Honda CR-V by RM53k? What's the difference in taxes?

It made little difference, Proton continued to lose market share. Between 2002 and 2006, Proton’s sales had fallen by nearly 50 percent! From a record high of 214,985 units (a record that still stands today) to 115,706 units.

Meanwhile, Perodua was doing better, improving from 127,478 units to 155,419 units in the same 5-year period, usurping Proton for the sales crown.

Also read: Once unbeatable, Proton lost its No.1 rank not because of Perodua, but the PC. How?

Malaysia feared that allowing cheap locally-produced Geely cars into Malaysia would erode Proton’s (and to a certain extent, Perodua’s) position even further.

Despite the RM 100 million commitment from Geely, the Malaysian rebuffed Geely’s proposal with two ridiculous requirements – the cars made cannot have engine capacities below 1.6-litre (essentially Proton and Perodua’s market), and 80 percent of the production must be exported (meaning just 2,000 cars can be sold in Malaysia annually).

The latter was yet another moving of the goal post by the Malaysian government, as the previous requirement was 70 percent.

Geely’s response

Annoyed by the moving of the goal post, Geely cancelled all talks with Malaysia and took the money to Indonesia, appointing PT Gaya Motor, which operates a plant just outside of Jakarta, as its contract manufacturer.

The Geely CK1 was launched in Indonesia in May 2007. Locally-assembled Geely MK models joined October 2009.  

So how did Geely performed in Indonesia? Terrible – you can’t expect any other outcome right?

At its peak in 2012, Geely sold 1,232 units (for reference, Proton Indonesia sold 2,263 units then). Few private buyers bought a Geely, with most of the sales coming from taxi operators. None went back to place more orders.

The quality of the Geely MK was horrendous, with some taxi drivers reporting that the clutch and brake pedals could become loose after repeated hard use!

Some threatened to strike if they are not allowed to go back to their previous Toyota Limo (Indonesian market taxi-specs Toyota Vios).

By 2014, sales had dropped to just 193 units (while Proton sold 523 units) and Geely pulled out of Indonesia one year later. Proton held out slightly longer, pulling out in 2019 but sales had already dropped to low two digit figures in the years before.

Once blocked by China, Geely was not supposed to exist

11 years after its rejection, Geely would return to Malaysia in 2017 to take control of Proton. Ironic isn’t it?

In that 11 years, Geely went from being a maker of industrial garbage that Indonesian taxi drivers didn’t want to drive to a maker of fine cars like this Geely Xingyue L.

As explained in my previous post, it’s overly simplistic to conclude that Chinese brands had it easy because of their huge domestic market. If that’s the case, the 1.3 billion-population India’s Tata would’ve rivalled Great Wall Motor and the 270 million-population Indonesia’s (fourth biggest in the world) Timor national car project wouldn’t have failed.

There was one more important point that I had to skip in my previous post, to keep the word count tight.

Coming from a country that mollycoddles Proton and Perodua, many assumed that Geely is China’s pride and therefore received huge support from the Chinese government, when the opposite is true.

That’s right, in its early days, Beijing was actively stopping Geely from making cars.

Consistent with the China’s philosophy of a centrally planned economy, Geely, which is not owned by any state-owned enterprises (SOE, their version of GLC), was seen by Beijing as an overly ambitious village pumpkin poking its nose into something it's not supposed to.

Early days of China’s automotive policy, Geely to be shutdown

Although the Shanghai-VW project – production of the first modern car in China – began in 1983, a formal automotive policy would only be put in place in 1987.

Beijing’s original plan to accelerate its automotive industry centered on just 6 state-owned companies, colloquially referred to as the “3 big 3 small plan” (三大三小), 3 SOEs each for large and small vehicles.

In the ‘3 Big’ group is First Automobile Works (FAW), Second Automobile Works (now known as Dongfeng Motor), and Shanghai Automotive Company (now known as SAIC).

In the ‘3 small’ group is Beijing Automobile Industry (now known as BAIC), Tianjin Automobile Industry, and Guangzhou Automobile Industry (now known as GAC Group).

Political cadres assigned to these SOEs were supposed to run a profitable joint venture (JV) with foreign manufacturers and pick Western technology (‘steal’ if necessary).

SAIC for example, partnered with VW and GM. In a complex arrangement, foreign partners also spread out their risk and extend their sales network across the very big China by having more than one partner.

Toyota for example, counts both GAC and FAW as its partner, offering slightly different models to their two ‘local wives.’

Foreigners joke that key to a successful car business in China is to have two very capable wives, one for each key market region, but at the same time keep the two wives far apart from each other.

It is why the Toyota Corolla Altis is sold under two different names in China – Corolla and Levin, and why Volkswagen has such a confusing array of SUVs and sedans, one each for their SAIC-VW and FAW-VW joint ventures. 

China doesn’t like surprises and Geely is a surprise.

Founder Li Shufu came from a farming village near Taizhou, province of Zhejiang, far away from the industrial and political centres of Shanghai, Guangzhou, and Beijing.

In China, some say that the sharpest business people come from Zhejiang. Do you know who else came from Zhejiang? Jack Ma (Alibaba) and Ding Lei (NetEase).

To make cars, you need a license, which Geely didn’t have back in the early ‘90s.

There are two important idioms that all Chinese businessmen believe – yibu yibu (one step at a time) and daole qiaotou jiuguo qiao (you cross the bridge only when you reach it, meaning don’t succumb to analysis paralysis).

The first seeks to mitigate risk, the seconds encourages risk taking. Together, these two believes form a yin-yang balance that pushes Chinese entrepeneurs forward.

With the 4-wheeler business locked out, Li went one rung lower, making cheap scooters in 1993. Years later, an opportunity would appear when the Deyang Prison Vehicle Factory (yes, a factory in a prison. Remember this is Communist China), which used to make military trucks, was closed down.

Li bought over the factory and voila – he now has a license.

In 1997, Geely built its first car, the Geely Haoqing, a licensed copy of another licensed copy, Tianjian-FAW’s Xiali, a rebadged third-generation Daihatsu Charade.

But the manufacturing license Geely had doesn’t allow it to make larger, more profitable sedans, and sales were limited only to certain regions. To sell his cars throughout the country, Li needed approval from Beijing.

Li once penned a poem, “There were but a few sincere, wise, brave children who walked barefoot on the ice in order to realize the dream of a Kingdom of Cars.”

In 1999, when China's top economic planner Zeng Peiyan visited Li’s hometown in Zhejiang, Li pleaded with Zeng saying, "I would not regret even if we fail, but could you please give us an opportunity first? If we succeed, we can help explore a new road to develop China's auto industry, and if we fail, we are not wasting the nation's money."

And that last bit, my dear Malaysian readers, is the biggest difference between Geely and our (quasi) national brands and why they are contended with being mere ‘jaguh kampungs’.

Typical of the Chinese, Zeng didn’t give a clear yes/no answer but an impression has been made. Remember it’s yibu yibu.

At the same time, Beijing was getting impatient with the original members of the elite 3 Big 3 Small grouping.

These state-owned companies appear to be getting too comfortable leveraging on their foreign partners, effectively becoming rent seekers of foreign technology.

Beijing was in a hurry to grow a competitive Chinese car and if these state-owned companies are moving too slowly, Beijing will introduce a new player into the game, just to shake things up.

SAIC had partnered with VW for 15 years but it’s still making the same VW Santana. It was only after Geely was allowed to make sedans that SAIC bucked up and acquired Britain’s MG Rover and Maxus.

Again, compare this very meritocracy-based decision versus our national car projects.

Some would argue that Malaysia is too small to have more than 2 national car manufacturers. That’s true, but don’t focus on one tree and lose sight of the forest – was the same meritocracy used in developing Proton’s vendors, dealers, and management ranks, at least in the crucial ‘80s and ‘90s when Malaysia had a small window of opportunity to get ahead of Korea, Thailand, and Indonesia?

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

There’s no point saying that things are different at Proton today, the train has left the platform.

Back to Geely. Two more years would pass and by 2001, one year after China’s entry into the World Trade Organization, China started liberalizing its economy and Geely was finally granted an automobile manufacturing license, the first private company in China to have it.

Later, Great Wall and Chery would follow suit – each with equally inspiring stories of tenacity and wit.

The rest of Geely’s story is what you know today. Not bad for a company that Beijing didn’t recognize, whose money was rejected by the Malaysian government, and whose cars were hated by Indonesian taxi drivers.