Pro­ton ther­apy for Geely

New Straits Times - - Business -

SYD­NEY: Li Shufu, founder and con­trol­ling share­holder of Geely Au­to­mo­bile Hold­ings Ltd, is adding an­other dis­tressed as­set to the tro­phy cab­i­net he's as­sem­bled over the past decade. His hold­ing com­pany, Zhe­jiang Geely Hold­ing Group, has agreed to buy half of Pro­ton Hold­ings Bhd, Malaysia's for­mer na­tional cham­pion car­maker, the Chi­nese com­pany said last Wed­nes­day.

Li can add Pro­ton to a col­lec­tion of waifs and strays that in­cludes Volvo Car AB and the London Taxi Corp, mak­ers of that city’s famed black cabs. The ques­tion for Pro­ton’s em­ploy­ees and cur­rent owner DRB-HI­COM Bhd, which will hold on to the other half of the busi­ness, is whether the deal means a trip to the hos­pi­tal, or the hospice.

There is ac­tu­ally rea­son for op­ti­mism. Volvo, which Li bought from Ford Mo­tor Co for US$1.8 bil­lion (RM7.68 bil­lion) in 2010, has per­formed rather well since the deal. While Ford’s op­er­at­ing mar­gin has flailed around the low sin­gle dig­its, con­tribut­ing to the com­pany’s de­ci­sion to re­place chief ex­ec­u­tive of­fi­cer Mark Fields this week, Volvo’s has steadily risen. Its net in­come was about one per cent of Ford’s in 2011, the first full year of Li’s own­er­ship; last year, it came to about 19 per cent of its for­mer par­ent’s.

Not ev­ery ac­qui­si­tion has gone so well. London Taxi con­tin­ues to hem­or­rhage money, with £8.8 mil­lion (RM48.6 mil­lion) of losses since Li took the group un­der his wing in 2013. Even there, though, the un­der­ly­ing busi­ness is ar­guably per­form­ing bet­ter, with op­er­at­ing in­come of £1.5 mil­lion in 2015 ver­sus a £1.8 mil­lion op­er­at­ing loss two years ear­lier.

Li’s strat­egy in many way re­sem­bles that of Car­los Ghosn, who has like­wise stitched to­gether a global au­to­mo­tive group by pick­ing up stakes in com­pa­nies at dis­tressed prices, as­sem­bling the sprawl­ing al­liance of Re­nault SA, Nis­san Mo­tor Co, and Mit­subishi Mo­tors Corp.

As with Re­nault-Nis­san, Zhe­jiang Geely has been try­ing to re­duce du­pli­cated costs at its var­i­ous brands by build­ing its Volvo and Geely cars off a com­mon plat­form, shar­ing pro­duc­tion lines and col­lab­o­rat­ing on de­vel­op­ing hy­brid and bat­tery elec­tric ve­hi­cles.

That’s prob­a­bly a bet­ter strat­egy than the one fol­lowed by Ratan Tata. While Tata Mo­tors Ltd’s Jaguar Land Rover ac­qui­si­tion has proved an even greater suc­cess than Geely’s in­vest­ment in Volvo, there’s been lit­tle op­por­tu­nity for syn­er­gies be­tween that high-end op­er­a­tion and Tata’s low-cost do­mes­tic brand.

As a re­sult, the Bri­tish busi­ness con­tin­ued to sup­ply the over­whelm­ing ma­jor­ity of Tata Mo­tors’ group prof­its in an­nual re­sults last Tues­day.

Pro­ton would pro­vide a bet­ter op­por­tu­nity for in­te­gra­tion.

In geo­graphic terms, it would play a sim­i­lar role to Mit­subishi’s stand­ing within the Re­nault-Nis­san Al­liance, de­liv­er­ing the broader group an en­tree into South­east Asia.

Its rel­a­tively af­ford­able cars could also pro­vide a nice bridge be­tween the pre­mium Volvo seg­ment and Geely’s own-brand ve­hi­cles, while Pro­ton’s Lo­tus mar­que pro­vides a bit of di­ver­si­fi­ca­tion into sex­ier sports cars. The dealer network around Asia, Aus­tralia and the UK, while mod­est, could help re­vive Geely’s flag­ging ex­port sales, too.

Whether that will be enough to knit to­gether Li’s dis­jointed network of au­to­mo­tive in­vest­ments is an­other mat­ter — but the odds are cer­tainly bet­ter for en­tre­pre­neur­ial out­fits like Geely than they are for the gi­ant sta­te­owned enterprises that dom­i­nate China’s do­mes­tic in­dus­try in vol­ume terms.

As Gad­fly has ar­gued pre­vi­ously, most SOEs are still a long way from act­ing as any­thing more than par­a­sites on their for­eign joint-ven­ture part­ners — one rea­son that they’ve ar­gued so vo­cif­er­ously against gov­ern­ment plans to re­lax the re­stric­tions around in­ter­na­tional own­er­ship.

While Geely’s state-owned ri­vals fo­cus on tax­ing off­shore au­tomak­ers who want to sell cars in China, Li has a vi­sion for the world. In China’s parochial car in­dus­try, that’s a re­fresh­ing change. Bloomberg Gad­fly

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