The history of the Malaysian national car is an interesting one, interspersed as it is with these frequent gratuitous pronouncements by the prime minister, because it is questionable if the venture was ever viable, viewed as a pet megaproject by the prime minister himself.

By world standards, Malaysia is not an attractive market in which to participate, for several reasons. The population figures are not sufficiently large to support an efficient automobile industry, and the economic base is not sufficiently broad to provide a depth of buyers. There is no developed dealer network to support a significant level of sales through marketing, and the financial infrastructure which makes long-term purchases possible is not palatable to consumers.

Malaysia has for many years allowed foreign makers to assemble their models in Malaysian plants. Many of these manufacturers have enjoyed significant government support through lease and sale agreements for government ministries. These have now been terminated in favour of the national car. It is an effort to bolster national car sales, but there are other major problems to be solved. The prime minister himself has said that the venture may fail, a belated recognition presaging other revelations of megaproject disappointments.

Major markets for automobiles exist in Europe and the US, but there is little enthusiasm there for a Malaysian car so long as the prime minister continues his anti-West campaign. The Japanese, however, are more pragmatic about business affairs, and continue to penetrate the US and European markets with automobiles and electronics to whatever extent is possible, contingent with competitive constraints.

The Japanese, when faced with tariffs, typically surmount this barrier by making agreements to assemble their cars within the country where the cars are to be marketed. They agree to hire local labour, with a minimum of Japanese supervision, and to pay corporate taxes on the profits. The host countries, seeing new employment opportunities, readily agree. This tactic allows the Japanese auto manufacturers to maintain a significant market presence. After some time it is often noticed that the Japanese car makers do not hire significant local supervisors, and this becomes an issue.

Also, the Japanese manufacturers do not seem to be able to make a profit on these ventures, even subsidising them from the home till, and therefore the expected corporate taxes to the host country do not materialise.

Why is this? The prime minister has found the answer, after watching the struggling automobile industry in Malaysia for two decades. It has finally become clear to him that if you do not control the cost of all of the parts, the supplier of those parts can take all the profit (and then some) from the manufacture of the car. By the simple expedient of increasing the cost of the assembly parts, the profits can be transferred to the home office without tax or any outward evidence of bad faith.

The Proton relies on major foreign parts makers, primarily Mitsubishi. Thus it is Mitsubishi who actually controls the Proton car, and there is nothing that the prime minister can do about it. He is therefore faced with several choices, all bad. He has opted to compete with himself, in the form of offering Honda a chance to assemble cars in Malaysia. This is to be done through DRB-Hicom, which initially was a significant partner in the Proton project. But DRB-Hicom has disposed of its Proton shares to the national oil company, Petronas, and now is the prime mover in the venture with Honda.

The prime minister apparently fails to notice that the same situation exists. Honda controls the cost of the parts, and thus effectively can transfer all profits to the home office. DRB-Hicom is betting that it can compete successfully with the Mitsubitsi-Proton, and market successfully through their EON subsidiary.

EON, however, is committed to the Proton, and the Honda franchise is marketed through Kah. This represents a marketing problem for the venture which must be resolved. DRB-Hicom would like to sell its stake in EON, but now that Proton is a competitor, the market value of its EON stake is less attractive.

What is missing at the moment is the introduction of public funds, and the justification for that as a necessity to enter the international market.

What the prime minister is not saying is that he has accepted the failure of the national car as an accomplished fact, and now is paving the way for a new megaproject in the same industry.