Thailand is using the new and cheaper Nissan Almera to lock out imports of Proton Saga

Hans · May 22, 2020 02:47 PM

Last year, Proton exported just slightly over 1,100 cars, a far cry from its heydays in year 2005 when the company exported over 20,000 cars to various countries including Australia, Thailand, Indonesia, Turkey and Egypt.

The whole point of Zhejiang Geely buying a stake in Proton is to use Malaysia as its gateway to South East Asia, a region with a combined total new car sales of nearly 3.5 million cars annually, led by Indonesia (1,030,126 cars in 2019), Thailand (1,041,739 cars in 2019), and Malaysia (604,287 cars in 2019).

Details of how the export plan is going to work are still unclear because a lot has changed since Geely concluded the deal in 2017 to buy 49.9 percent of Proton and 51 percent of Lotus for RM 1 billion.

Between 2005 and early 2010s, Proton had a small window of opportunity to penetrate into Thailand and Indonesia. The Proton Savvy was at one time Thailand’s cheapest car and the nippy Proton was perfect for Bangkok’s congested city streets. There was no other option in that segment and later Naza also exported the Sutera there.

The Proton Exora also had some success in both Thailand and Indonesia. It didn’t sold much but it had market presence and the Exora was definitely a huge step up from an Indonesia-made Toyota Avanza. That small window of opportunity however, has since closed.

Before we go further, we need to rewind back to the ‘90s, when there was an unspoken rule among Thailand, Indonesia and Malaysia. It was understood that Thailand will focus on pick-up trucks, Indonesia on MPVs, and Malaysia on sedans/hatchbacks, and each country will respect the other's turf/'product champion.'

Product champions of ASEAN's Big-3

However by the 2000s, the newer generation of government bureaucrats are questioning why should they limit their country’s potential just so Malaysia can maintain their Proton and Perodua?

Thailand’s dominance in pick-up trucks was well established. It’s the world’s second biggest manufacturer of pick-up trucks after USA. By the 2000s, the Thai government said it’s time to look beyond pick-up trucks and set out to create a new product champion.

Examples of Thai Eco Cars

A decision was made to use budget A/B segment city cars – the exact type of products that Proton and Perodua rely on – as Thailand’s next product champion.

Indonesia also came to the same conclusion, expanding their ‘product champion’ from Toyota Avanza and Innova-style MPVs to the so-called Low Cost Green Cars (LCGCs), basically a Perodua Axia (Daihatsu Ayla).

Daihatsu Ayla/Toyota Agya is a product of Indonesia's LCGC policy. Perodua Axia was a side benefit.

These new developments were evidence that Thailand and Indonesia no longer wished to play ball with Malaysia. The way they see it, if they can be a better, more attractive manufacturing hub for passenger cars, why should they limit themselves just to maintain harmony with Malaysia? The ‘spirit of ASEAN’ cooperation don’t win votes you see.

When Thailand announced its Eco Car policy – a new category of Thailand-made low emissions city cars – in 2007,  it closed the door for the imported Proton Savvy. Not long after that, Proton closed down its sales office in Thailand.

That’s protectionism at work, minus a national symbol flag. Rather than propping up one or two local companies like Malaysia, Thailand has decided to lock out an entire segment from imported rivals.

But that’s old news. The latest development has intensified things a little further.

In the first phase of Thailand’s Eco Car policy, the limit for CO2 emission was quite lax, just 120 g/km, pretty much the industry average for small cars.

Eco Car Phase 2 has since tightened the limit to 100 g/km, strict even by European standards. Knowing that Indonesia and Malaysia rely on cheap subsidized fuel, which makes introduction of cleaner, more expensive fuels difficult, Thailand used tight emission regulations as a non-tariff barrier to make it difficult for manufacturers to merely ‘transplant’ production Malaysia/Indonesia-developed Daihatsu/Perodua models over there.

One of five in Thailand, the rest are by Toyota, Nissan, Isuzu, Mitsubishi

Their goal is to have more development work done within Thailand. Producing low emissions engines is expensive and profit margin in A-segment cars are as thin as their paint, so the government needed to give something back in return.

Thailand's excise duty structure

To offset the higher cost, Thailand reduced excise duty for Eco Cars from 17 percent to 12 percent, or 10 percent if it runs on E85 gasohol. More on that later. Eight-year corporate income tax excemption is also thrown in.

Since Eco Car regulations only limits engine capacity, emissions and fuel consumption, some manufacturers have come to the conclusion that it is cheaper to make a B-segment car priced like an A-segment cars, than to build another A-segment model.

Nevermind the Proton Saga, even the A-segment Mitsubishi Attrage has been made redundant by the B-segment Nissan Almera and Toyota Yaris Ativ

With enough volume, they can do that. Remember that there is a 100,000 cars per year production target (by the fourth year of production) to qualify for Eco Car incentives. They definitely need to export these cars and but the global market for A-segment cars is very small, thus limiting export potential.

On paper, the Nissan Almera is a B-segment car, like the Proton Persona, which sits one class above the A-segment Proton Saga.

Analogous to the Proton Saga is the Honda Brio Amaze and Mitsubishi Attrage, which are one of the cheapest cars in Thailand. Both are now selling very poorly.

The latest generation B-segment Nissan Almera has starting price in Thailand that undercuts even the A-segment Honda Brio Amaze – THB 499,000 vs THB 517,000.

Before you think that this must have been a poverty specs car, mind you the cheapest Almera S variant comes with a 1.0-litre three-cylinder turbocharged 101 PS/152 Nm paired to a CVT-type automatic, has dual airbags and electronic stability control, and LED tail lights.

It's a similar story with the Honda City. In fact, Honda doesn't even bother replacing the Brio Amaze with the second generation model that's already on sale in India. Like Nissan, Honda has figured out that there's no need for an A-segment sedan.

Thailand's Yaris Ativ is our Vios, but with a 1.2L engine.

Toyota too is using a similar strategy. The Toyota Vios that you and I recognize, is sold in Thailand as the Toyota Yaris Ativ, sans the familiar 2NR-FE 1.5-litre engine. Instead, it uses a smaller 1.2-litre engine to qualify for Eco Car tax deductions.

The Toyota Vios that’s sold in Thailand has a different design from ours.

Thai market Vios on the left, Malaysian ones share similar design to Thailand's Yaris Ativ.

The Yaris Ativ has a starting price of THB 529,000, just a shade above the Honda Brio Amaze (THB 517,000) and Mitsubishi Attrage (THB 494,000) but it comes with 7 airbags across the range. The Thais are impressed and it has effectively killed the A-segment sedan market.

A-segment cars are now redundant in Thailand, nevermind imported ones

These new crop of tax-deducted 1.2-litre/1.0-litre turbocharged B-segment cars that are priced like an A-segment, effectively rule out any chance of the Proton Saga (or even Proton Persona) succeeding there.

New Proton Saga is a highly competent product, but unfortunately it came too late. Export opportunities in nearby right-hand drive countries are almost none.

Unless Proton is willing to build a new plant in Thailand, which doesn’t make sense considering the utilization rate at its Tanjung Malim/Shah Alam plants barely reaches 50 percent, Proton can forget about selling the Saga there. The same goes for the Perodua Bezza.

The Proton Saga's claimed fuel consumption of 6.7-litre/100 km also exceeds Eco Car’s requirements of 4.3-litre/100 km. Even the Perodua Bezza’s 4.5-litre/100 km misses the mark.

Like Malaysia, Thailand imposes high import and excise duties while locally produced cars get rebates on the latter depending on their compliance to local requirements, Eco Car is one, ethanol blend gasohol biofuel is another.

While Malaysia has an agenda to push palm oil via biodiesel, Thailand does the same with sugar cane derived E20 gasohol. Eco Cars that can run on gasohol are taxed less, at 10 percent.

Over sixty percent of Proton’s sales come from the Proton Saga and Proton X70 and with the Saga almost at a dead-end for exports (Indonesia is a no-go, higher taxes for sedans), Proton’s next best hope is the X70. However, as an imported car, the X70 can’t be priced competitively against the Thailand-assembled MG ZS, a Chinese product by SAIC.

MG HS is doing in Thailand what Proton X70 is doing in Malaysia, undercutting everyone else

Thai consumers are unlikely see the more expensive imported Proton X70 to be superior to the cheaper, E85 compatible, feature-packed MG HS, which is currently the cheapest in the segment. The smaller MG ZS has already outsold the Honda HR-V.  

Shockingly good interior

The reality is that the ASEAN trade bloc is not one unified market, but a fragmented market with different regulations and customs. Talks of a deeply integrated ASEAN Economic Community (AEC) is a lie. That's not going to happen.

With Proton Saga locked out from competition, X70 is the next best hope for exports

Thailand, Indonesia, and Malaysia are fierce rivals competing for the same pool of foreign investment money. Malaysia’s mistake was that it didn’t know what it wants to achieve, while our neighbours focused on developing their ‘product champion’, refining the concept and perfecting their policies over the course of three decades.