GEELY PART­NER­SHIP THE BEST THING TO HAP­PEN TO PRO­TON

Joint ven­ture with Geely is set to change the na­tional car­maker’s for­tunes

New Straits Times - - Front Page - The writer is the chair­man of Ber­nama

PRO­TON Hold­ings Bhd’s switch­ing from a sin­gle-coun­try sole own­er­ship to a cross-bor­der in­ter­na­tional joint ven­ture with China’s Zhe­jiang Geely Hold­ing Group Co Ltd, in a mega deal signed on Wed­nes­day, is cer­tainly Malaysia’s cor­po­rate news of the year.

Now, the ques­tion ev­ery­one is ask­ing is: “Will it work?”

What the deal means is that in one stroke of the pen, Pro­ton — and Malaysia — have, in ef­fect, joined the ranks of sev­eral auto com­pa­nies across many coun­tries re­align­ing them­selves in a flurry of in­dus­try con­sol­i­da­tion sweep­ing the world.

In a move to se­cure growth, the tie-up with Geely prom­ises to up­end Pro­ton from its slow­ing sales with an am­bi­tious aim of ramp­ing up pro­duc­tion to 500,000 cars over the next three years, more than five times its cur­rent pro­duc­tion. This can only be de­scribed as mov­ing from shrink­age to growth.

Ac­cord­ing to an­a­lysts, in an in­dus­try where vol­ume per unit cost, re­search and devel­op­ment, and plat­form shar­ing are all es­sen­tial to profitabil­ity, it is im­pos­si­ble for Pro­ton to achieve this in a small do­mes­tic mar­ket.

While the 500,000 pro­duc­tion num­ber con­sti­tutes a big jump in man­u­fac­tur­ing from Pro­ton’s cur­rent out­put of roughly 100,000 cars per year, the cross­bor­der part­ner­ship-for-growth model that Pro­ton has en­tered into is a well-tested con­cept.

In fact, cross-bor­der auto part­ner­ships have to­day be­come so com­mon that they are be­ing taken as a norm in busi­ness life.

Take, for ex­am­ple, some top brands, whose own­ers are for­eign.

The Bri­tish Rolls Royce Mo­tor Cars Lim­ited is a wholly-owned sub­sidiary of Ger­man au­tomaker BMW since 1998. Mean­while, top mar­que Bent­ley Mo­tors Lim­ited, also a Bri­tish man­u­fac­turer and mar­keter of lux­ury cars, has been a sub­sidiary of Volk­swa­gen AG since the same year.

Then, there is the epit­ome of high-end Bri­tish mo­tor­ing, Jaguar Land Rover Lim­ited head­quar­tered in Coven­try, the United King­dom, which be­came a sub­sidiary of In­dian au­tomaker Tata Mo­tors in 2008.

Just this year, Ger­many’s Opel and Bri­tain’s Vaux­hall, both from the Gen­eral Mo­tors sta­ble, were bought out­right by France’s PSA Group.

Pro­ton’s new for­eign part­ner, Geely, in 2009, did what was then thought to be fool­hardy, buy­ing Swe­den’s ail­ing Volvo from Ford and turn­ing it around in quick fash­ion within just two years.

Volvo, un­der Geely, went from an auto bas­ket case, bleed­ing US$653 mil­lion (RM2.9 bil­lion) in pre-tax losses in 2009, to mak­ing record prof­its of US$1.25 bil­lion on the back of a rev­enue of US$20.2 bil­lion last year, prov­ing that part­ner­ships with seem­ingly strange bed­fel­lows can pay off hand­somely.

Geely has six fac­to­ries in China and four abroad. Chair­man Li Shufu has said the com­pany is plan­ning for 15 fac­to­ries world­wide, with two-thirds of its cars be­ing sold out­side China.

Geely also owns The London Taxi Com­pany, which pro­duces the iconic black cabs of London.

In the first four months of this year, 365,000 cars were sold glob­ally by the Geely group, which is on track to sell one mil­lion cars by the end of this year.

In this pic­ture, DRB-Hi­com Bhd group man­ag­ing di­rec­tor Datuk Seri Syed Faisal Al­bar, whose com­pany also owns Pro­ton, ex­plained that the deal would en­able Pro­ton to tap into Geely’s vast range of plat­forms and power trains, and give it ac­cess to the Chi­nese car­maker’s mar­kets.

The deal, in which Geely buys a 49.9 per cent stake in Pro­ton and DRB-Hi­com keep­ing 50.1 per cent, cre­ates a Malaysia-China joint ven­ture akin to the Pero­dua own­er­ship be­tween Malaysia and Ja­pan.

It is as if with the wave of a magic wand, Pro­ton has el­e­vated it­self into a team of global auto play­ers and, for starters, Geely is shar­ing its Boyue NL3 sports util­ity ve­hi­cle de­sign, tech­nol­ogy and plat­form, which Pro­ton will pro­duce in Malaysia for the re­gional mar­ket.

This will im­me­di­ately jump­start Pro­ton’s ex­pan­sion through the in­jec­tion of a ready-made new SUV model, al­low­ing the na­tional car­maker to re­tain its work­force, pro­vide fresh or­ders for its parts sup­pli­ers and ven­dors, and re­verse flag­ging sales.

Along­side this im­me­di­ate new modal in­jec­tion, it would make sense for Geely to use Pro­ton’s un­der­utilised Tan­jung Malim plant to man­u­fac­ture Volvo mod­els des­tined for the Asean mar­ket, which will dras­ti­cally lower its sell­ing price and boost com­pet­i­tive­ness in the duty-free Asean zone.

Ob­vi­ously, as the pic­ture un­folds, the cross-bor­der deal will see growth in Pro­ton through pro­duc­tion of new mod­els, and other Geely mod­els.

This will put to rest the fears of some who say the Geely part­ner­ship will see Pro­ton staff be­ing laid off, ven­dors side­lined and dis­trib­u­tors cast aside.

On the con­trary, it will trans­late into more jobs, and more work for ven­dors and sup­pli­ers, who will need to play catch-up with Pro­ton’s rapid growth.

Scep­tics of this tie-up are ad­vised to think for them­selves whether a for­eign strate­gic part­ner will wade into a deal that will cost it bil­lions of ring­git over the years, share its re­search and devel­op­ment, and trans­fer its de­signs, tech­nol­ogy and plat­forms if it does not in­tend to grow Pro­ton’s pro­duc­tion.

The ob­vi­ous mar­ket for Pro­ton’s im­me­di­ate ex­pan­sion is Asean — the world’s fastest grow­ing car mar­ket with a pop­u­la­tion of 600 mil­lion, and a right-hand-drive ve­hi­cle mar­ket where Geely has zero pro­duc­tion pres­ence.

Here, Pro­ton can step in to fill the void and the two com­pa­nies, in work­ing to­gether, will crack the Asean mar­ket faster at a much lower cost than in­di­vid­u­ally ex­pand­ing on their own.

Then again, to ramp up pro­duc­tion, keep­ing new mod­els in the pipe­line will re­quire the Pro­ton-Geely joint ven­ture to set up a world-class re­search and devel­op­ment cen­tre in Malaysia, which im­me­di­ately trans­lates to high-value jobs for Malaysians.

For Pro­ton, it is bet­ter to be in a pros­per­ing part­ner­ship than a money-los­ing sole own­er­ship.

At the same time, this au­to­mo­tive joint ven­ture will have other in­dus­tries in the coun­try, from oil and gas, to prop­erty devel­op­ment, fur­ni­ture man­u­fac­tur­ing and aero­space en­gi­neer­ing, ask­ing them­selves whether they, too, ought to go global through the joint-ven­ture route.

As in the case of Pro­ton, all in­di­ca­tors are point­ing to the na­tional car be­com­ing an in­ter­na­tional player as it leaves be­hind the strug­gles of be­ing con­fined to a small do­mes­tic mar­ket.

All said and done, the Pro­ton-Geely part­ner­ship is ar­guably the best thing to hap­pen to the na­tional car­maker in its en­tire che­quered history. Ber­nama

ADAM ARININ PIC BY MOHD

As a re­sult of the Pro­ton-Geely joint ven­ture, ven­dors and sup­pli­ers may need to play catch-up with Pro­ton’s rapid growth.

The Pro­ton-Geely joint ven­ture will trans­late into high-value jobs for Malaysians when a re­search cen­tre is set up.

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