Proton set to prosper in mega cross-border deal with China’s Geely
KUALA LUMPUR: 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, in a mega deal signed on Wednesday, is certainly Malaysia’s corporate News of the Year.
The question everyone is asking is: “Will it work?”
What the deal means is that in one stroke, Proton - and Malaysia - have in effect joined the ranks of several auto companies across many countries, realigning themselves in a flurry of auto industry consolidation sweeping the world.
In a move to secure growth, the Proton-Geely tie-up promises to upend Proton from its slowing sales, to ramping up production to 500,000 cars over the next three years, which is more than five times its current production.
It can only be described as moving from shrinkage to growth.
According to analysts, in an industry where volume, per unit cost, research and development, platform sharings are all essential to profitability, it has proved impossible for Proton to achieve this in the small Malaysian 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 cross-border partnership-for-growth model that Proton has entered into, is a welltested concept.
In fact, cross-border auto partnerships have today become so common that it is being taken as a normal fact of business life.
Take for example some top British brands whose owners are foreign.
Rolls Royce Motor Cars Ltd is a wholly-owned subsidiary of BMW established in 1998.
Meanwhile, top marque Bentley Motors Ltd, the British manufacturer and marketer of luxury cars, is a subsidiary of Volkswagen AG since 1998.
Then, there is the epitome of high-end British motoring, Jaguar Land Rover Ltd, headquartered in Coventry, UK, and is a subsidiary of Indian automaker Tata Motors.
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 turned it around in quick fashion within just two years.
Volvo, under Geely, went from an auto basket case bleeding US$ 653 million 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 in 2016, 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 that the company plans 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 selling one million cars, worldwide, by end 2017.
Into this picture, steps in Proton, owned by DRB-Hicom Bhd, whose chief executive Datuk Seri Syed Faisal Albar explained the deal enables Proton to tap into Geely’s vast range of platforms and power trains, and gives Proton access to the Chinese car maker’s existing markets.
The deal in which Geely takes 49.9 per cent of Proton and DRBHicom keeps 50.1 per cent, creates a Malaysia- China joint venture akin to the Perodua ownership split between Malaysia and Japan.
It is as if with the wave of a magic wand, Proton elevates itself into a team of global auto players and for starters, Geely is contributing 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 car maker to retain its work force, provide fresh orders for its network of parts suppliers and vendors, while reversing flagging sales.
Alongside this immediate new model injection, it would make sense for Geely to use Proton’s under utilised Tanjung Malim plant to manufacture Volvo models destined for the Asean market, which will drastically lower its selling price, boosting its competitiveness, in the duty- free Asean zone.
As this picture unfolds, the crossborder deal between Malaysia’s Proton and China’s Geely will see growth of Proton through new models, manufacturing of other Geely brands.
The obvious market for Proton’s immediate expansion is Asean, the world’s fastest growing car market with a population of 600 million, a right-hand- drive vehicle market where Geely has zero production presence.
Here, Proton steps in to fill the void and the two companies working together will crack the Asean market faster and at a much lower cost, than each attacking the market on its own. 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 components, asking themselves whether they too ought to go global through the joint venture route.
As in the Proton case, all indicators point to the national car becoming an international player while leaving behind the struggle of being confined to a small domestic market.