MV Agusta: RM500 million down the drain

Raja Petra Kamarudin

My wife and I visited the Daimler Benz factory in Stuttgart, Germany, soon after we took up the Mercedes Benz franchise for the State of Terengganu in the early 1980s. Heading the delegation of Mercedes dealers from all over Malaysia was Jaafar Ali, fondly known as Jeff, brother-in-law to the previous Prime Minister, Dr Mahathir Mohamad.

I knew Jeff from my Rotary Club days of the 1970s. He was certainly a ‘riot’ and the life-and-soul of the party, if you know what I mean. You would always know when Jeff walked into the room. He had this affect on people, and if the party was dull, rest assured Jeff would pick it up in no time at all. I only have fond memories of Jeff. If Malaysia had just 1% of people like Jeff, this country would definitely be a much nicer place to live. Jeff is in fact the exact opposite of his brother, one-time Bank Negara Governor, Ismail Ali. It is mind boggling they had the same parents. But then the Ali family is a large family and I suppose in any large family there are bound to be at least one ‘black sheep’, the joker in the pack. The rest of the family seemed to be very serious people — like Dr Siti Hasmah, Zaleha, Ismail, Aziz, and General Hashim (have I missed out anyone?).

The Daimler Benz visit was most memorable indeed, especially the museum where Mussolini’s and Hitler’s cars were on display. More interesting though was the visit to the R&D department. There, for the first time, we saw the 190E being tested. My wife fell in love with this ‘baby’ Mercedes straight away. It was love at first sight. I knew she would never forgive me if I did not buy it for her, so I placed my order on the spot with instructions to Jeff that they make sure we received the first 190E in Malaysia. At least I could enter this into the Malaysian Book of Records — my wife being the owner of the first 190E in Malaysia with registration number TH88 (don’t know whether we did get the first unit though).

The car did not cost that much really, if not I would not have been so impulsive as to place an order then and there. I can’t remember what it cost in DM, but by the time it landed in Malaysia, and with 200% import duty included, it cost only about RM85,000 on-the-road. Less the tax, therefore, it was much cheaper than a Kancil today. Yes, that’s right; it is the tax that kills the price of the car.

But imported cars needed an Approved Permit (AP); they still do today. So I shopped around for an AP holder and arranged to ‘buy’ one from a chap we had been dealing with for some time. He wanted to charge me RM30,000 for the AP. I was terribly unhappy with this. That was more than the ex-factory price of the car. I reminded the chap that I had given him many AP customers — our buyers who wanted to import Mercedes Benzes from Germany but did not have APs. I know he normally charges RM30,000 for an AP, but then this is for my personal use, so can’t he reduce the price of the AP? As a gesture of goodwill, he reduced it to RM20,000. I was hoping he would say RM10,000. But the 190E was on the way so I had no choice but to agree to RM20,000.

Anyway, back to the visit to Daimler Benz’s R&D department. We watched the 190E being banged about. We saw another unit being tested on a most punishing track that would smash a Proton in five minutes. If the 190E could withstand all this, then it must certainly be a good car.

How long is the car put through this punishment?

Until something breaks, they replied. Then it is back to the drawing board to redesign the part that broke.

Then?

Then it is tested again until something else breaks. Then they go through the whole process again.

Wow! How long has this been going on?

Well, from design, to prototype, to now, testing stage, nine years.

Nine years? You mean this car was designed nine years ago and it is still at testing stage? When will I get the 190E I ordered?

Maybe in another year or so, they replied.

But isn’t this very expensive? I mean, to spend nine years, maybe ten years by the time it hits the market; before the car is ready to be sold?

Well, they replied, we make sure our cars last at least one generation. In fact, Mercedes Benzes made three generations ago are still on the road. Try to find a Japanese car ten years old still on the road. If there are, they would be in a sorry state.

True, very true, and Mercedes Benzes are just a bit more expensive compared to Japanese cars. Of course, once you take into consideration the rate of exchange and import duties (and AP cost), the cost spirals. But the ex-factory price in DM is not that exorbitant. Okay, last question, considering the amount of R&D put into this car, how much would you have to spend before you actually sell the first unit?

DM1 billion, they replied sheepishly.

What! DM1 billion? How would you recover your R&D cost? How can you sell the 190E so cheap and still cover your R&D cost?

Well, we have to sell a lot of cars. The R&D cost has to be spread over hundreds of thousands of units, maybe millions. The cost of the car is not actually in the production cost. This is only a small portion of the cost. The cost is in the R&D. That’s why Japanese cars are cheaper. This is because they don’t spend too much on R&D. They do reverse-engineering (ciplak in Malaysian lingo). But Japanese cars can’t last as long as German cars.

True, very true. Hmmm….now it becomes clearer.

And with this backdrop in mind, let us now talk about the current ‘war’ between former Proton chief executive officer, Tengku Tan Sri Mahaleel Tengku Ariff, and the present Proton management over the MV Agusta issue.

Why did Proton pay that much money to buy a ‘sick’ Italian motorcycle company? Well, it is not that much really, only about one-third of what Daimler Benz paid to develop the 190E more than twenty years ago. And that was twenty years ago mind you. Taking today’s value of money into consideration, the cost to buy MV Agusta would be less than 10% the cost to develop the 190E.

Yes, this is the reason behind the MV Agusta purchase — which Malaysians were not told in Proton’s statement on the issue last week. Dr Mahathir Mohamad wanted to develop a volkswagen, a peoples’ car, and he wanted it to cost less than RM10,000 a unit so that it would be affordable to poor people. Well, Hitler too wanted his volkswagen and he called it…. hmm…. Volkswagen. Okay, Hitler also accused his number two of being a homosexual and blamed the Jews for Germany’s economic problems, but this is not what we want to talk about today (just wanted to be naughty by slipping that in).

But how to develop a RM10,000 car? The R&D cost per car alone would come to more than that. By the time the production and other costs are included, you could not get the car on the road for under RM30,000. So, not only must they get an almost zero R&D cost, but they must also obtain the technology to manufacture the car at almost the cost of a motorcycle. When a cub chai costs RM6,000, then two cub chais glued together would still cost more than RM10,000. Not an easy task is it?

Yes, that’s right. Proton needed to develop a four-wheel vehicle cheaper than two two-wheel vehicles joined together. Who in the world has this kind of technology? And how to do it without having to pay RM1 billion in R&D cost? Simple, go buy a company that already has this technology and obtain all the technology from them. And is there such a company? Yes, there is, and this company is in dire straits so they want to sell it off (if not why would they want to sell it?). And this company is called MV Agusta.

Yeap, MV Agusta, the company now the centre of controversy, the company that would have made possible a RM10,000 car, the company that the new Proton management sold off for just RM4 after pumping RM500 million into it.

Sigh….there goes RM500 million of our tax money. Sigh again….there goes our RM10,000 car, Malaysia’s volkswagen. And yet another sigh….for RM10,000 I can’t even buy a 250cc motorcycle.