Market access among benefits of takeover deal
INDUSTRY NEWS/ Michael Taylor reports on the implications of Geely’s acquisition of DRB-Hicom
Surging Chinese car maker Geely is set to take over DRB-Hicom after outlasting the Peugeot Citroen Group (PSA) in a bidding duel. The takeover will deliver Proton and sports car brand Lotus to Geely, to go along with its Swedish brand, Volvo, and its recently announced Lynk&Co brand, as well as the London Taxi Company.
Geely’s bidding battle with the Dongfeng-controlled PSA (the parent company of Peugeot and Citroen) saw DRB-Hicom shares rise to their highest point in two months, while Geely shares surged to record high on the Hong Kong stock exchange. The highest-performing stock on the Hang Seng index, with 250% growth in the past 12 months, Geely also took over Volvo from Ford in 2010 for $1.5bn.
It hasn’t been a smooth process, with Geely pulling out of the bidding as recently as midApril, accusing DRB-Hicom of dithering over the selection process. “They keep changing, today it’s this, tomorrow it’s that,” Geely chairman Li Shufu said in April. “They haven’t decided what they want.”
The glamour part of the deal gives Geely full control of Lotus Cars, the sports car operation based in Hethel, near Norwich in the UK, which has racked up losses for decades and has essentially been in a holding pattern since controversial former boss Dany Bahar was sacked in 2012.
However, sources have conceded there were other, more significant reasons why the deal made sense for Geely.
The most important of those is access to Proton’s Tanjung Malim plant, which is barely utilised today but has a capacity of 150,000 cars a year. The plant in Malaysia will give Geely its first right-hand-drive production capacity (outside Volvo’s Swedish operations), allowing it to access 84 countries that are barred to it today.
The first part of the deal is to transfer right-hand-drive production of the Lynk&Co 01 sport utility vehicle to Tanjung Malim so the car can be sold in countries such as Australia, the UK, Japan and SA.
Due to be launched in China late in 2017, the 01 will be launched in Europe midway through 2018. Three other models are planned to follow by 2021. As Malaysia is part of the free-trade Asean bloc, it would also allow Geely to export cars tax free to Brunei, Singapore, Indonesia, the Philippines, Thailand, Laos, Cambodia and Vietnam.
The Lotus takeover brings a surprising benefit for Geely, too. It is pursuing a plastic body-onaluminium architecture for its London Taxi programme, and nobody has more experience at bonding the two materials together than Lotus, which has used the technology effectively for the Elise and Elise-based sports cars for 20 years.
What Geely plans to do with the ailing Proton brand remains a mystery, even to senior Geely insiders, who believe the brand’s future is far from locked in. If it survives, it would be as the group’s budget brand.
Proton’s domestic market share fell from 15.3% in 2015 to just 12.5% in 2016, while total production fell 29% in 2016 to just 72,300 cars.
Geely itself has no such concerns, with its sales growing 63.5% from the first quarter of 2016 to the same period in 2017, according to Jato Dynamics. The Geely Group now ranks 13th in the world with 410,830 sales in the first quarter of the year, placing it behind Daimler and BMW and ahead of Mazda.
It sold 330,000 cars a year before it swallowed up Volvo (which was then selling roughly the same number of cars). Combined into a group, the two brands moved 1.3-million cars in 2016 and the aim is for 2.8-million by 2020, with 800,000 of those from Sweden.
BESIDES ITS NINE CHINESE PLANTS, GEELY HAS FACTORIES IN BELGIUM, SWEDEN AND ENGLAND AND BUILDS ABOUT 20 DIFFERENT MODELS WHAT GEELY PLANS TO DO WITH THE AILING PROTON BRAND REMAINS A MYSTERY, EVEN TO GEELY INSIDERS
Besides its nine Chinese plants, Geely has factories in Belgium, Sweden and England and builds about 20 different models. It has design studios in Swedish city Gothenburg, Shanghai, Pasadena in California and Barcelona, employing about 500 designers.
It’s also the biggest of the Chinese outfits, outranking 15th-placed Chang’an (389,305 cars sold in the first quarter of 2017), Great Wall in 19th place and GAC in 20th. While PSA ranks 10th with 682,174 cars sold in the first quarter, just ahead of Daimler and behind Suzuki in size, it is controlled by China’s Dongfeng, which sold only 239,818 cars over the same period and is the 18th-biggest car maker in the world.
But PSA and Dongfeng are also struggling to swallow the recent takeover of General Motors’ German operation, Opel, and PSA itself has lost 5% in sales so far in 2017.