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Background of Edaran Otomobil Nasional Sdn. Bhd. (EON-A)

Perusahaan Otomobil Nasional Berhrad (PROTON) was the company

that manufactured the Malaysian national car Proton Saga. PROTON was
incorporated on May 7, 1983. The PROTON plant, covering an area of
550,000 sq. meters, was the largest arid most modern plant in South-East
Asia with a production capacity of 100,000 cars per year.
The government management decided that in the initial strategy plan
separate the sales function from production function for greater efficiency
and specialization. Therefore, EON incorporated to become the sole
distributer of the Proton Saga in Malaysia.
Edaran Otomobil Nasional Sdn. Bhd. was incorporated on May 16, 1984
owned by:
-

45% by Heavy Industries Corporation of Malaysia (HICOM)

35% by United Motor Works (UMW)
15% by United Assembly Services (Mitsubishi)
5% by Edaran PEKEMAS Bhd.

The Proton Saga was a special project of the Malaysian Prime Minister
to further industrialization of the country and economic development.
The objectives of the Malaysian national car project were as below:
1- To rationalize the local automotive industry;
2- To spearhead the development of local component industries and to
enhance greater utilization of local components;
3- To encourage upgrading of technology emphasizing technical and
engineering knowledge and skills of the country;
4- To assist and develop the Bumiputras participation in the automotive
industry.

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Local Condition
Malaysia has a land area of over 330,000 Square kilometers
consisting of peninsular Malaysia, Sabah, and Sarawak on the large island of
Borneo. Malaysia is a country of rich natural resources and a world producer
of natural rubber, palm oil, cocoa and tin. Malaysia also has vast forest
resources and is a major exporter of petroleum and natural gas.
The country labor force is skilled and its location along major sea
routes plus being adjacent to Singapore has made the country a major
participant in international trade and investment flows.
In 1963, Malaysia together with Singapore, Sabah, and Sarawak
became an independent federation of states. In 1965, Singapore left the
federation. Malaysia from the beginning was dominated by Malay group
known as the United Malay National Organization (UMNO). Together with
Parties representing Chinese and Indians, UMNO formed and led the National
front.
In May 1970, the government of Malaysia launched a 20-year
plan intended to address racial issues within the country. This plan, called the
New Economic Policy, had national unity as its overall objectives and two
secondary objectives as below:
1- To reduce and eventually eradicate poverty by raising income levels
and increasing employment opportunities for all Malaysians
irrespective of their races.
2- To accelerate the process of restructuring Malaysian society to balance
economic situation, leading to eventually elimination of identification
of race with certain economic function.
The Goal of the New Economic Policy was that by 1990 Bumiputras
would own 30% of the countrys corporation wealth; the Chinese and Indians,
40%, and foreign investors, 30%.

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Mahathir became prime minister in 1981 and it was he who put
together the implementation of the 4th Plan (1981-85). The general thrust
was further expansion and diversification of the economy prioritizing
international trade and encouraging privet sector leadership and reduction of
the public sectors role.
A second major initiative was the launching of the Malaysian car,
the Proton Saga. Despite widespread skepticism about Malaysias ability to
produce a local car, the Proton Saga project was conceptualized in 1982 as a
Joint Venture between the Malaysian Government and Mitsubishi. It was seen
as the countrys move from assembly operation to progressive
manufacturing of car parts.

Industry Structure
The Passenger car business gave the consumer a wide variety of
choice, in terms of engine capacity, make, and equipment level in 1985, the
bulk of market was within the <1600 cc segment which approximated 80%
of total market shares as may be seen as below:
<

1000 cc 8.4%

1001

1600 cc 70.0%

1601

1800 cc 12.6%

1801

2000 cc 3.7%
>

2000 cc 5.3%

In this segment, the market leaders were Nissan and Toyota. Nissan
and Toyota assembled parts of their vehicles in Malaysia. Their main
advantage was their flexibility in car models based on the latest trends in

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their overseas market. Nissan and Toyota were also established brand names
and had a reputation for excellence.
The major purchaser of cars for the period of 1981 to 1984 was the
state of Selangor. This was followed by Johor, Perak and then Pahang.
Car manufacturers identified the following factors that directly
influenced car purchase:
123456789-

Fuel Economy
Exterior Styling
Riding comfort
Ease of handling
Roominess for driver
Interior styling
Engine power
Engine Performance
Durability

Indirect factors that influenced purchase were:

123456789-

Trade-in
Price
Reputation
Support
Delivery
Status symbol
Confidence in Brand
Terms
Location of Branch

The Proton Saga

The Proton Saga was a four door sedan specifically designed for
Malaysian market. It came in two models 1.3S and 1.5S.
The Proton Saga was positioned within the 1600 cc and below market
segment. It was the only locally manufactured car and enjoyed certain tariff
protections. This allowed the Saga to be priced lower than its major
competitors.

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The Saga was retailed at an average price of M$ 18,215 compared to
Nissan Sunny 130Ys M$ 19,520 and Toyota Corollas 1.3 at M$ 22,681.
The Proton Saga or peoples car had the following targetmarket:
12345-

Male
Aged 21 to 40
Personal Income of M$ 1001-2999/month
Malaysians
Various sections of the community

Early on, EON management decided that their goal was to be the
market leader in the passenger car market through the supply of an
affordable and good quality car. EON decided on a rapid penetration/high
growth strategy.
The responsibility given to EON as the sole distributor of the Malaysian
car required the company to set up a large organization in very short span of
time. EON started out by being housed under United Motor Works premises
but once management decided that operations were ready, plans for a
headquarters were finalized.
As early as December 1984, announcements were made that the
Proton Saga was open for bookings. In July 1985, 1001 Special Proton
Number Plates were made available to the public to commemorate the
forthcoming launch and the first thousand and one cars that would grace the
Malaysian roads. EON made good use of multimedia advertising TV, print
and radio.
August 7, 1985 was the first day of the West-East Malaysian tour called
the Sagarama. For 13 days, two Proton Saga 1.3s Saloon cars were driven
throughout the country stopping in cities and towns. Each stop was made
amidst warm welcomes and fanfare. At each stop, a local official or member
of the Malaysian Royalty would welcome the Saga by placing a sticker on the
car to signify that the Saga had passed his town. The Sagamara was well
received by the Malaysian people, giving it the air of a major festival.

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Townspeople would come out to the local plaza to welcome the Saga. Town
after town exerted further effort to outdo its previous host.
On August 9, two days into the Sagamara, motor journalists from 14
local newspapers and monitoring magazines were invited to test drive the
Proton Saga. These cars carried the names of journalists and the Publications
they represented.
September 1, 1985 marked the official launch of the Proton Saga and
the official opening of EON corporate HQs. Market response was immediate
and by October, 1985 EON has sold appx 2100 units of the 1.3S model and
1100 of the 1.5S model. Bookings continued to pour in.
Problem Statement

In November, 1985, Donald Choo was called for an emergency meeting

by the Executive Committee of EON. The Saga had no power and it could not
climb the highlands. How could it with only 1300 cc. The radiator was too
small and any exertion would cause it to overheat.
Donald Choo knew that his problem would fall into his hands. What was
the best thing to stop these rumors?