A new dawn for Proton
After 32 years, the Government relinquishes its role in Proton Holdings Bhd. The national car manufacturer has gone into an agreement to forge a strategic partnership with China’s Geely for its next stage of growth. The new-look Proton plans to ramp up pr
PROTON Holdings Bhd needed a major surgery to nurse itself to health.
The only question has always been how it should be done and which surgeon should be called to perform the delicate task, where the country should not lose control and pride of the national car manufacturer.
The selection process had been tedious and finally it boiled down to a choice of between the French and the Chinese.
Proton had to choose either the French auto giant PSA Group, which produces Peugeot cars, or Geely Automobile Holdings Ltd, the Chinese manufacturer.
Finally, the best consideration was made with the view of which company among the two would have access to the world’s largest automotive market.
It doesn’t take anyone to make a guess. It’s China, where over 28 million cars are sold annually.
Selling 49.9% of the stake in Proton means the national car manufacturer would remain majority owned by a Malaysian entity.
In future, Proton may have a chance to be on the streets of China, a sprawling country with a growing middle-income population hungry for automobiles.
A tiny 1% of the market would translate to 280,000 cars, which is small for a Chinese manufacturer. However, it would mean a lot for an entity such as Proton, which has a substantial amount of underutilised manufacturing capacity.
Perusahaan Otomobil Nasional Bhd (Proton) was incorporated on May 7, 1983, to manufacture, assemble and sell motor vehicles and related auto products. It produced Malaysia’s first commercial car, the Proton Saga, in July 1985.
Soon after its launch, Proton commanded the lion’s share of the local automotive market.
In the last 15 years, however, the market share has dropped. Last year, it fell to 12.5% of local market share from 15.3% in 2015.
Its total sales fell 29% year-on-year to 72,300 units due to deteriorating market conditions, said Hong Leong Investment Bank Research in a recent report.
Proton’s tie up with Geely would put the national car manufacturer on a stronger footing to expand into the Asean market.
Asean is a market of 600 million people and for Geely, Malaysia is the base to export its vehicles tax-free to any of the 10 Asean members.
Domestically, the new strategic partnership has helped to save the jobs of 60,000 people who are working, directly or indirectly, with Proton.
There are also up to 240,000 vendors, distributors and suppliers in the eco-system, which is surely a sensitive matter in the run up to the general election.
There are plenty of rice bowls at stake here and these numbers do not even include their family members.
It’s a win-win decision for Geely, which incidentally means lucky, in Chinese. The deal enables the Hangzhou-based billionaire Li Shufu to acquire 51% of Lotus, which produces sports cars, from Proton.
Li is a 54-year-old industrialist worth US$7.2bil (RM30.9bil) and he chairs Geely, one of China’s 10 largest automakers and one of the few non-government controlled ones.
He bought Sweden’s Volvo, which was slipping down the road, for US$1.8bil (RM7.7bil) in 2010, and successfully turned it around, and saved thousands of jobs at the assembly lines.
Although he is one of the richest men in China, he reportedly stays in a modest Beijing apartment and dresses inexpensively.
Li is known to “smile and chuckle frequently” and “his only known eccentricity is a weakness for writing verse”, according to a news report, with over 20 poems posted on his website.
Obviously, Li also has his eyes on Lotus, which became famous after the Lotus Esprit made its appearance in James Bond movies.
In 1977, a custom-built submarine, in the shape of a Lotus Esprit S1 sports car, even appeared in The Spy Who Loved Me.
Li for sure understands the penchant of the rich Chinese for cars that comes with a tinge of luxury and international brand presence.
He also knows too well that the average Chinese wage earner would want an ordinary car, where the Proton brand fits the bill well.
Li has also helped to create jobs in the United Kingdom.
Following Geely’s acquisition of the London Taxi Company, which produces the city’s black cab, the Chinese company opened a new factory in Coventry investing some £300 million (RM1.67bil).
The plant at Ansty in the West Midlands will now produce thousands of electric vehicles later this year.
With Geely coming as a strategic partner, it also means that the Proton operation in Tanjung Malim, Perak, can be expanded and be positioned as an automotive community city.
Indeed, China’s government has reportedly been encouraging its auto companies to acquire technology that it lacks as the auto sector has been identified as a weak segment within its manufacturing sector.
Proton started the exercise to get a foreign strategic partner more than six months ago after the Government gave it financial assistance of RM1.5bil to pay off the vendors of the troubled national car manufacturer.
One of the conditions to the financial assistance was that Proton, wholly owned by DRBHicom, needed to secure a foreign strategic partner as soon as possible.
Key considerations to the selection are what the potential partner would bring to the table in terms of strategy and operations.
The deal with Geely allows Proton to end its prolonged financial troubles and that the government cannot be expected to pump more taxpayers money into this company.
Proton was set up in 1983 by former prime minister Tun Dr Mahathir Mohamad as part of the strategy to industrialise Malaysia.
However it has not been able to penetrate the overseas markets with many countries imposing protectionist barriers while Malaysia is simply too small a market.
The result has been that Malaysians have to buy their cars more expensively and the poor public transport system did not help either.
Prime Minister Datuk Seri Najib Tun Razak has rightly pushed for better public rail links.
But this deal with Geely has been made possible simply because of his strong links with Chinese leaders.
Second Finance Minister Datuk Seri Johari Abdul Ghani also worked quietly behind the scenes to support the deal to make it become a reality.
It has been rightly inked because Proton remains under Malaysian hands while the Chinese company is a strategic partner, which can help open access into China in the future.
It’s more than just someone putting in more capital. It’s a smart business transaction.