GEELY PARTNERSHIP THE BEST THING TO HAPPEN TO PROTON
Joint venture with Geely is set to change the national carmaker’s fortunes
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
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.