In which direction is Proton driving?

ARCHIVES 2013

By admin-s On Jan 14, 2013

(Free Malaysia Today) – Proton has only one viable engine in production, and another unproven design bought from Petronas recently. It has dubious research and development capabilities and proven unreliability in quality control.

Proton wants to play a starring role in Southeast Asia, but there are many road bumps ahead.

With the flurry of news and rumours surrounding Proton Holdings Bhd and its owner DRB-Hicom Bhd last week, Malaysians had a reason to revisit their love-hate relationship with the national car company, contemplate its chequered past and ponder its future.

On Wednesday, we were told that DRB-Hicom was to spearhead the development of an “Asean” car in which Proton would be playing a starring role, and that DRB-Hicom may be taken private for as much as RM4 per share, besides listing what used to be Proton and DRB-Hicom distribution outfits.

Last Thursday, the DRB-Hicom management denied the delisting part, which burst the balloon that sent its shares to a 10-month high of RM2.78, to as low as RM2.65.

After a long silence about Proton since Syed Mokhtar AlBukhary-controlled DRB-Hicom bought its controlling stake from Khazanah Nasional Bhd more than a year ago, the sudden news flap is interesting.

If you believe that there’s no smoke without fire, Syed Mokhtar’s financial advisers must be talking about something more substantial than the weather around the water cooler.

But that is the trouble with trying to fathom anything about Proton, because literally anything can happen at the last minute, like the collaboration with Volkswagen AG (VW) that was called off the night before it was supposed to be signed.

Frayed analysts, after seeing countless analyses on Proton disproved by what seemed to be random acts, have kept their sanity remembering one important thing: Proton is not so much of a car company as the centrepiece of government policy, and therefore normal commercial considerations may not apply.

People of a certain age (that is, older people) will remember the day in 1985 when the Proton Saga was unveiled to great expectations. Though boxy, and decidedly dated because it was based on the 1983 Mitsubishi Lancer, the Saga caught our imagination and carried our hopes for a while.

Since then, due to many unfortunate issues with quality control and the fact that to make the Proton cheaper by comparison, the government raised taxes on other cars to make them more expensive. Malaysians love to hate the Proton – whether deservedly or not.

To us, it is a national icon, but to somebody else, let’s say a foreign car company of immense size with aspirations of world dominance, Proton is not a viable car company and should be brought under the wing of the said car company with world domination in mind.

Dubious R&D capabilities

From their clinical perspective, Proton has only one viable engine in production, and another unproven design bought from Petronas recently. It has dubious research and development capabilities and proven unreliability in quality control.

It is also not selling enough cars and being overtaken at home by foreign-backed rivals even at competitive pricing.

However, it has two things going for it. Its underutilised production capacity and its favoured position in Malaysia, which is an important member of Asean.

DRB-Hicom, being an automotive and property development conglomerate, has several partners that can make full use of these assets. Chief among them are Honda Motor Co and Volkswagen AG (VW) of Germany.

While Honda has stated that it wants Malaysia to be the regional production hub for its hybrid cars, only VW has designs on being No 1 in the world with a target to sell 10 million cars a year by 2018.

That VW is really keen on owning Proton, or at least its assets, is obvious because it fits into its global design to tap into a major slice of Southeast Asia’s appetite for two million cars a year.

Also any Malaysian-produced car, if local content is at 40% or more, would enjoy duty-free status to all Asean member-countries under the Asean Free Trade Agreement.

This is a huge a leg-up on rivals such as Toyota and other Japanese pretenders. Furthermore, Malaysian-made VWs could also be exported to other markets where they drive on the left side of the road, like India for example.

The Wolfsburg, Germany-based company had previously made an offer to tie up with the then public-listed Proton in 2007 but discussions eventually foundered because of opposition from parties that wanted the company to remain Malaysian-owned.

Crucial market

In July last year, VW was also reported to have considered making a bid for Proton’s share that Khazanah Nasional was divesting, which a German magazine said might include a full-scale acquisition in the long run.

The German carmaker wants a foothold in Southeast Asia after its surpassed Toyota in 2011 as the world’s second-largest manufacturer behind General Motors because it is a crucial market for increased sales as part of its ambition to become No 1.