Proton's Tie-up with Honda

Proton has signed a non-exclusive ownership partnership deal with Honda to address some of its current shortcomings. The partnership is expected to focus on technology improvements, new products as well as sharing of platforms and facilities.

As a result, proton's facility in Tanjung Malim may be open for Honda to use, thus increasing profitability by increasing capacity usage of the facility which has been underused for years. The deal is also expected to augment Proton's product line-up with Honda's assistance in developing a new product line-up, especially with new powertrains from Honda which would spare Proton from cost-intensive engine development.

Another upside to the deal is that the collective resources of both parties will together challenge for market leadership in Malayasia. Sharing platforms, technology and product line-ups will lower production costs, thus allowing more competitive pricing. Perodua, indirectly controlled by Toyta via Daihatsu, has benefitted from similar partnership by seeing strong sales and access to newer technology from its partner. Proton and Honda are now in a position to reap similar rewards.

The deal is good news for Proton, whose sales has been generally flat since last year. The gap between Proton's prices and its rivals has also narrowed due to competition and the continuing liberalization of the autho industry. To continue competing in the affordable car segment, Proton needs lower manufacturing costs and economies of scale in its favour. Indeed, the deal may well ensure the survival of Proton which is essential under the National Automotive Policy as many families' livelihood depend on the carmaker.

Questions: Explain how the partnership deal between Proton and Honda could reduce the cost of production. Using a diagram, explain how economies of scale could help Proton to compete with its rival in terms of pricing.