Business

Wednesday September 16, 2009

Urgent need to find partner for Proton

By JAGDEV SINGH SIDHU


KUALA LUMPUR: Past talks might have ended acrimoniously but the current dynamics of the industry and Proton Holdings Bhd’s impending needs have led to both Proton and Volkswagen (VW) facing each other at the negotiation table once again.

While the terms of the deal may be different, the common need for both parties to strike a deal appears to be as strong as before.

What makes the talks this time a little different is probably a sense of urgency on the part of Proton, VW and the Government.

An analyst said for the long term, Proton needed a partner because the Malaysian market was not large enough to sustain an independent producer.

“Proton, too, knows it needs to forge a long-term strategy for growing its business outside Malaysia. One way is to initiate alliances,” he said.

Proton has a long-term business plan that aims to see it selling cars to neighbouring countries in South-East Asia, China, India and the Middle East.

The company’s multi-pronged approach of having a number of partners for specific models, such as one with Mitsubishi to make a replacement for the Proton Waja, may work but, for the moment, addresses only the need for Proton to replace an outdated model.

Proton also needs to develop a far wider range of not just models but also powerplants, such as a diesel engine, or petrol engines beyond the scope in which the Campro engines can satisfy.

“The largest European company would be an ideal partner,’’ said another analyst.

Analysts also feel there is a need for Proton to gain somewhat from the technical aspect. It surely is painfully aware that smallish independent car companies serving a competitive mass market segment will find it difficult to compete in the longer run in international markets.

But at what price? What if talks of strategic alliances are lopsided in VW’s favour? To ensure the long-term survival of Proton, a certain amount of give-and-take, however, needs to be compromised on.

For VW, it is not an issue of once bitten, twice shy. There is little room for pride in international business where obligations to shareholders to ensure profits are stable and growing are of paramount importance.

The German giant was reported to be committing four billion euros in new investments in China to build on its presence in Asia.

In a statement last Friday, Reuters quoted VW as saying that the money would be used till 2011 to develop new products and expand production capacity in China by another 100,000 vehicles.

“We will grow in China at a considerable double-digit rate in 2009 and in the future to continue to secure market leadership,” Winfried Vahland, VW’s China president, said.

“The Volkswagen Group China is on track to reach the Strategy 2018 target of doubling our (annual) sales to two million vehicles earlier than planned,” he added in the report.

The company’s foray into China has been a wild success and, given that automobile demand in Asia is still extremely robust, especially in China and India, the continent is an area no serious carmaker can ignore.

In that, the other big demand segment in Asia is South-East Asia.

To that, VW said it was exploring the possibility of building cars in Malaysia with Proton.

“In May, Volkswagen agreed to assemble vehicles with a local partner in Indonesia in what was a first step to expand our activities in the Asean market,” a VW spokesman said in the report.

“Over the long term, these investments in Indonesia are not sufficient to serve the entire Asean market. Local production in Malaysia is, therefore, a further option in this strategy.”

VW is investing 35 million euros in a factory in Indonesia to build the Volkswagen Touran.

The market in South-East Asia is tremendous but challenging for any carmaker. The size of the population, in excess of 500 million, and the diverse tastes, such as Malaysia being a passenger car market, Thailand a pick-up truck market and Indonesia an MPV market, will offer something for anyone.

For VW, which has a big stable of makes, the passenger car market should be the immediate goal and it is no surprise that Malaysia will prominently feature in any such plans.

Finally, there is the Government, which has put so much into Proton that right now it cannot afford to sideline the company.

On the other hand, the Government truly missed the golden opportunity of making Malaysia the auto hub in South-East Asia when it chose to protect the national auto companies ahead of market liberalisation.

“It is vital in terms of sustainability, looking at where the National Automotive Policy is heading and the domestic market being squeezed,’’ an analyst said on the need for Proton to have a foreign strategic partner.

The Government must also be aware that Proton will have a lot more to offer, otherwise why are there people interested in taking over the company?

It has been reported that some of the country’s largest tycoons are eyeing Proton. Billionaire Tan Sri Syed Mokhtar Al-Bukhary, who fought a battle over DRB-HICOM Bhd, is interested in getting control of the national auto company.

Internet chatter is also rife with talk that Yasmin Holdings Sdn Bhd, with the help of former Proton executive Datuk Kisai Rahmat, is teaming up with the Naza Group to launch a bid for Proton.

Options to sell the controlling stake will be on the table for the Government but it too knows that setting Proton straight ahead of market liberalisation moves will be the right step to make under the current scenario.


PROTON : [Stock Watch] [News]

  • E-mail this story
  • Print this story