Malaysia plans an “Islamic” car?

What next?

MALAYSIA'S struggling national carmaker, Proton, claimed this week to have identified a huge gap in the world's car market. It believes there is demand for an “Islamic” car. The idea stems from desperation, but it is not as batty as it first seems.

Carmaking represents a big chunk of many economies. It brings jobs, advanced manufacturing techniques and national pride. But carmakers find it devilishly hard to make money, especially when volumes are small. Proton has struggled to make headway since it was created almost 25 years ago, despite protectionism and lots of state aid.

Its position has become especially dire recently. Its domestic market share has fallen from over 60% to 23% in the past five years after a cut in import tariffs, and the firm now appears to be heading for the industry's exit ramp. It has meagre export sales of around 20,000 cars a year, which go mostly to tiny markets such as Brunei, Nepal and Bangladesh. As a consequence, Proton is facing mounting losses. It lost M$591m ($169m) in the year to March on sales of barely 130,000 cars. Compared with its much larger international rivals, Proton is a vulnerable minnow.

Hence its latest wheeze (and there have been many): a plan to build an “Islamic” car in association with carmakers in Iran and Turkey. Iran, which dreamt up the idea, has a big car market with several manufacturers building vehicles under licence from foreign firms such as Peugeot and Renault. But, with a desire to skirt international sanctions and create more jobs, it has long wanted a car industry of its own. It just needs someone to provide the technology.

Turkey has not expressed a wish to create a home-grown car industry, but it is one of the largest Muslim car-buying markets. Together, the Iranian and Turkish markets might give Proton a chance to achieve economies of scale. And as demand grows in other more populous Muslim countries such as Indonesia and Pakistan, sales of an “Islamic” car, the thinking goes, would surge.

But is Proton really in a position to lead such a venture? Its most ambitious recent model, the Gen-2, was a flop. Such is Proton's desire to remain independent—partnership discussions with various international carmakers over the years have all foundered—that it is unlikely to be keen to share know-how. And if indeed Proton has identified a new market, its rivals will surely soon be on the scene. As planned, its “Islamic” car will feature a compass to indicate the direction of Mecca, a box in which to store a copy of the Koran and a compartment for a headscarf. This, Proton seems to think, is a formula that no other carmaker can match. That seems unlikely.