PROTON & EON Fortunes TUMBLE as PERODUA overtakes PROTON in Car Sales; Will New PROACTIVE Governance; Best PRACTICES; MITSUBISHI 380 Save PROTON?

For the first time ever Malaysia second car manufacturer outsold Proton with the sales of national passengers car. Total Perodua sales for the first six months this year rose to 78,396 units while sales of Proton cars dropped to 60,246 units. According to the Malaysia Automotive Associate, this can be attributed to higher demand for small sized cars which Perodua is popular for.

“I think Proton has been No. 1 for several years. Since 1985 (sales 7000 units) and after that they were No 1. This is the first time that Perodua has overtaken Proton”

Total vehicle sales in 2006 is expected to drop by 6% to 520,000 units compared to 2005. Higher interest rates and rising fuel prices are among factors that are expected to cause sales to wilt this year.

Will the adoption of new corporate governance with current best practices and tighter controls in it management practices arrest the decline?

From Business News
Malaysia's Auto Sales May Post First Drop in 3 Years(Update 1)

Updated : 27-07-2006 Media : Bloomberg Story By : Stephanie Phang and Chan Tien Hin (Adds analyst's comment in the sixth paragraph.)

July 27 (Bloomberg) -- Malaysia's 2006 vehicle sales may fall for the first time in three years as lower used-car prices, stricter lending and higher interest rates curb demand, the Malaysian Automotive Association said.

Sales of cars, vans and sport-utility vehicles may fall 6 percent to 520,000 units this year from 551,042 in 2005, the association said in a statement today. It had in January forecast sales would rise 2.5 percent. Last year, Malaysia sold 13 percent more vehicles than in 2004.

``This is an unusual dip'' because sales typically fall only every five or six years compared with the current cycle of three years, Aishah Ahmad, association president, told reporters in Petaling Jaya. ``We hope it will improve by year-end.''

Sales are falling mainly because the value of used cars, which are sold to fund subsequent purchases, slid after carmakers reduced prices of new vehicles following the government's changed auto policy, Aishah said. On March 22, Malaysia cut import taxes for vehicles made in Southeast Asia.
Higher interest rates and fuel prices are also crimping demand for national carmaker Proton Holdings Bhd., Kia Motors Corp. and other assemblers. This year's sales decline would mark the first annual drop since 2003. The central bank, in a bid to curb inflation, raised its key interest rate three times since November when Malaysia increased borrowing costs for the first time after the 1997-1998 Asian financial crisis.

Asean Sales

``The biggest factor for the car sales not moving up is the low trade-in value,'' said Wan Azhar Wan Mustapha, an analyst at OSK Research Sdn. In Kuala Lumpur. ``Spending a lot on a car might not be high on the list of consumers' needs. Coupled with rising interest rates, more strict credit requirements, it will further dampen the potential of sales.''

Malaysia's inflation rate more than tripled after Prime Minister Abdullah Ahmad Badawi's government raised fuel prices five times since May 2004 to cut its subsidy bill.

Bank Negara last raised borrowing costs on April 26 to 3.5 percent, the highest since the benchmark rate was introduced in April 2004.

``It's not unique to Malaysia,'' Aishah said. Car sales have fallen in most Southeast Asian markets because of higher fuel prices and weak consumer confidence, she said. In Indonesia, vehicle sales plunged 49 percent to 149,886 units in the first six months, she said.

Second Half

Malaysia's passenger car sales may fall 8 percent to 368,000 units this year from 400,835 units in 2005, the association said. Commercial vehicle sales may rise 1.3 percent to 114,000 units in 2006 from 112,531 last year, it said.

Sales may ``stabilize'' in the second half of the year and resume growth in 2007 as consumer sentiment strengthens, helped by lower car prices and promotions by car companies, Aishah said. The implementation of projects under the government's five-year development plan announced in March will also lift demand for commercial vehicles, she said.

``Soft demand will be apparent for this year and could extend towards next year,'' said Wan Azhar. ``Whether sales will rebound next year is yet to be seen.''
The association will ask the government to introduce an incentive for car
owners to scrap very old cars and buy newer used cars to boost sales, Aishah
said.

Proton, Perodua
First-half auto sales fell 5 percent to 248,407 units from 261,111 a year earlier, the association said. Passenger cars accounted for 74 percent of sales with 184,725 vehicles sold, compared with 76 percent, or 199,554 units, a year earlier. Industry sales will be unchanged from a year earlier at best in the second half, Aishah said.

Perusahaan Otomobil Kedua Nasional Sdn., or Perodua, overtook Proton as the country's largest carmaker in the first half of the year, the association said. Perodua sold 78,396 passenger cars in the first half, or 42 percent of total car sales, compared with Proton's 60,246 units, or 33 percent.

``This is the first time that Perodua has overtaken Proton,'' Aishah said. Perodua's 1.3 liter Myvi model ``is a real success and also, people are downsizing.''

OSK has a ``trading buy'' recommendation for Proton's stock and recommends that investors ``buy'' UMW Holdings Bhd., which owns a stake in Perodua. The research house, which earlier this year forecast Malaysia's 2006 vehicle sales would decline 4 percent, won't change its recommendations after today's industry report, Wan Azhar said.

``Proton's problem still lies deep in their inability to come up with any new products,'' said Wan Azhar. ``But you look at UMW, they are doing very well.''

Production grew 1.7 percent to 278,646 vehicles in the first half, as non-national carmakers such as Kia and Toyota Motor Corp. increased output 7 percent to 89,214 units, while production of national cars was unchanged at 189,432 units.

EON tumbles to 5-year low Updated : 31-07-2006; Media : The Edge Story By : N/A
via www.biznewsdb.com

Edaran Otomobil Nasional Bhd’s share price closed at more than a five-year low of RM2.07 on July 31 as investors worried about uncertainties ahead, especially after the company offered a voluntary separation scheme to all its 2,500 employees.

It ended the day 18 sen down to RM2.07. There were 235,500 shares done at prices ranging from RM2.02 to RM2.25. The share price was at its lowest since May 14, 2001 when it closed at RM2.07.

Based on the share price of RM2.07, it was trading at less than half of its net tangible asset per share of RM4.24 per share as of March 31, 2006.

Analysts said there were concerns about the declining sales volume of its cars. EON’s sales of Proton cars have come under pressure against Proton Edar and lower demand for national cars.

They said investors were also concerned about the changes in the top management and the direction they were taking the company. Another concern was inventories that totalled RM617.9 million and receivables of RM266.73 million as of March 31, 2006.

However, they said EON is still cash rich with RM176.93 million and reserves of RM807.14 million.
and from the theEDGE
Proton: Tighter systems in place ;By Tamimi Omar 31 Jul 2006 7:46 PM

Proton Holdings Bhd has taken a proactive approach to, its managing director Syed Zainal Abidin Syed Mohamed Tahir said.

"New systems are in place, which clearly define limits and accountability. We are happy with these steps, and we will continue monitoring and tightening these procedures," he said in a statement on July 31.

Syed Zainal said this was after Proton had undertaken a review of the major processes, decision-making structures and limits of authority.

He was responding to the cover story of The Edge this week titled "Proton Expose", involving a special investigation into the workings of Proton dating back to 2002 exposing a number of instances, decisions and actions taken by the management without the knowledge and approval of the Proton board.

The story highlights several parts of a report by PricewaterhouseCoopers for
Proton chairman Datuk Mohammed Azlan Hashim late last year.

"As part of our review, we had appointed external auditors to assist in re-examining Proton's internal processes and procedures.

"The goal was to determine potential weaknesses in the process leading to decisions, as well as identify means to address these weaknesses," Syed Zainal said.

Syed Zainal said one of the first steps was an evaluation of the internal governance structure where changes were made to the management committee and board composition at related subsidiaries.

"It is an ongoing process of improving policies, guidelines in ensuring proper governance relating to areas such as procurement, limits of authority, roles and responsibilities," added Syed Zainal.

from Bernama
Tighter Systems In Place, Says Proton
July 31, 2006 20:46 PM

KUALA LUMPUR, July 31 (Bernama) -- Proton Holdings Bhd Monday stressed that
it had already taken a proactive approach to align corporate governance with current best practices.

"We had undertaken a review of the major processes, decision-making structures and limits of authority," its managing director Syed Zainal Abidin Syed Mohamed Tahir said Monday in response to a recent news article regarding a report by Picewater- houseCoopers on Proton.

According to the report, the national car maker has poor corporate governance in the past.

The report was commissioned by Proton chairman Datuk Mohamed Azlan Hashim and the present management on Sept 2, 2005, to investigate the company's past affairs.

Among others, PricewaterhouseCoopers mentioned that some projects were implemented without proper consultation or consent, billions of ringgit in expenditure spent without indepth discussion, and the board being unaware of legal problems.

"As part of our review we had appointed external auditors to assist in re-examining Proton's internal processes and procedures," Syed Zainal said in a statement.

The goal, he said, was to determine potential weaknesses in the process leading to decisions, as well as to identify means to address these weaknesses.

"Resulting from this, one of the first steps taken was an evaluation of the internal governance structure of Proton where changes have been made to the management committee and board composition at related subsidiaries," Syed Zainal said.

"Now systems are in place, which clearly define limits and accountability. We are happy with these steps, and we will continue monitoring and tightening these procedures," he said.

"It is an ongoing process of improving policies, guidelines in ensuring proper governance relating to areas such as procurement, limits of authority, roles and responsibilities," he added.

In a news report Monday, Proton was quoted as saying that it was too early to decide whether any legal action would be taken against the previous management after the third party report may have showed mismanagement in the company's affairs from 1996 until late 2005.

However, the company did not rule out the possibility of going to court, the report added.

Will this imported Mitsubishi 380 somewhat brake Proton's woes? With proper pricing it can capture back some of the "big car" market apart from its monopoly in the government sector

Proton May Bring In Mitsubishi Cars From Australia ;July 31, 2006 17:18 PM

MELBOURNE, July 31 (Bernama) -- Proton Bhd may import the Australian-made
Mitsubishi 380, according to a report in the Herald Sun here.

The newspaper reported that Proton was working on a programme which would make the 380 its flagship car, with a deal which Mitsubishi Motors Australia (MMA) spokesman, Kevin Taylor, said was likely to be signed "any day".

While Proton saw the 380 as an ideal replacement for its elderly Perdana, the carmaker has indicated it was not interested in "rescuing" MMA.

Sales of the Perdana replacement vehicles would be aimed at government officials, police and wealthy businessmen.

"The Perdana is so ... far past its use-by date," Proton's head (product planning/ programme engineering) Bob Hall, told Australian journalists recently.

Proton was also pushing MMA to consider a four-cylinder engine for the 380 and hopes to make a decision on a potential deal before year-end.

"It's still alive. It's a heavily-studied project," the report quoted Hall as saying.

Proton has done most of the groundwork on the 380, including shipping cars to Malaysia and sending its engineers to Australia. The deal would involve as many as 8,000 cars from Australia.

The original plan was to ship the 380s from Australia to Malaysia but Proton now preferred to take car kits which it could assemble in its own factory to cut duty costs.

The newspaper said Proton hoped to get the car with a 2.4-litre four-cylinder motor, a project which Mitsubishi has admitted it was studying as a result of the petrol price increase in Australia.

Mitsubishi's Taylor said a deal could be signed any day now. "They are keen to get the car and we are obviously keen to supply it," he said.

For a feature and technical preview goto Mitsubishi 380

UPDATE AUG02 06:

Tengku Mahaleel had the gall to ask who release this confidential report and by whom and why only up to 1996. He should respond directly and answer the findings questioning his style as CEO running Proton like his grandfather's company. And the gullible Tun was praising him "sky high" and complaining about his replacement

Proton report: Tengku Mahaleel surprised by leak
Muhammad Razif Aug 2, 06 2:48pm

Proton's former chief executive officer Tengku Mahaleel Tengku Ariff is surprised as to how an audit report of the national car manufacturer by Pricewaterhouse Cooper had leaked to the media.

"The report is confidential...how was it exposed to the public. How did it get to the media?" he asked when contacted today.

In view of this, Tengku Mahaleel said the Proton management must investigate how the report had leaked. "They must find out who leaked it and why," he added.

He also asked why the report only covered decisions made in the company for a decade. "Why only up to 1996, why not 1995?"

The former Proton CEO was responding to a report in the business weekly, The Edge which published the comprehensive Pricewaterhouse Coopers findings.

No consultation

The report found that Proton's corporate governance was poor. Among others, it claimed that some projects were implemented without proper consultation resulting in billions being spent without in-depth discussions.

It also stated that approval from the board of directors was only sought after decisions had been made or agreements signed by the management.

Following this, Proton said it was looking into the matter.

Its managing director Syed Zainal Abidin Syed Mohamed Tahir said the company did not rule out the possibility of legal action against the previous management. He also said that it is natural for the new management to find any weaknesses if it wants to improve the company.

Tengku Mahaleel was Proton's CEO from 1997 until he was ousted in July last year.
He oversaw the purchase of debt-ridden motorcycle maker Agusta for 70 million euro (now US$89.6 million) in 2004. After his departure, Proton sold Agusta to Italy's Gevi SPA for a token sum of one euro.

Mahaleel and Proton advisor and former prime minister Dr Mahathir Mohamad have strongly criticised the Agusta sale, demanding information on why it went ahead and saying their credibility is at stake over the deal.
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