Thursday November 1, 2012
Tie-up with Honda will address Protonís weakness
Making a Point - By Jagdev Singh Sidhu
WHEN DRB-Hicom first gave hint of a turnaround plan for subsidiary Proton in September, it revealed little details. What was known was that it wants to sell more cars and get unit Lotus back on track. It said its bankers wanted to know of such plans by the end of the year.
This week, Proton signed a deal with Honda as its foreign strategic partner. The non-exclusive deal gives rise to further similar tie-ups, with Volkswagen expected next, but off the gates, the partnership with Honda aims to address quite a bit of Proton's current weaknesses.
First off is sales. Looking at the number of cars Proton has sold, sales have been flat at best from a year ago. It's a situation that needs rectifying fast and management of Proton has set an ambitious sales target of 200,000 cars for its financial year ending March next year.
Proton has sold about 107,000 cars so far this calendar year and 72,000 cars from April to September, which is the halfway mark for its current financial year.
DRB-Hicom has acknowledged that resuscitating Proton is important not only to the national auto industry but also for itself after having spent RM3bil to privatise the national car maker.
The announcement by DRB-Hicom indicates that the collaboration will look at areas of technology enhancement, new product line-up and platform and facilities sharing.
DRB-Hicom also said the partnership was an opportunity to grow as an original equipment manufacturer, and that the opportunities were endless.
The announcement gives rise to the possibility that Honda might use Proton's facility in Tanjung Malim, which for years has been grossly under utilised. Increasing capacity utilisation will improve the profitability of the plant.
Analysts have said that Proton plans for a new Preve variant in 2013 and a long overdue replacement for the Perdana in 2014 but it needs new models to compete effectively.
The prospects of Honda helping with a new product line-up will help boost the range of cars Proton will sell in Malaysia. But first on the list is whether the relationship will see Proton get its hands on a new engine, as the Campro engine is well past its shelf life. New powertrains from Honda will help the development of new cars and will relieve Proton from having to develop an engine itself which can be very costly.
The other benefit of the arrangement between both parties is that together, they may pose a challenge towards Perodua and Toyota in terms of market leadership in Malaysia.
Perodua, which is controlled by Daihatsu and ultimately Toyota, has reaped the rewards of having a strong foreign partner. Its cars are selling well and it manages to get access to newer technology from its relationship.
With cross ownerships and tie-ups now blurring the automotive divide that has traditionally been the case, such a tie-up with Honda can benefit Proton and Honda together just like how it has with Perodua and Daihatsu.
One important aspect of the sharing of platforms, product-line ups and technology is that it can lower the cost of making a car and offer a more competitive price than what it can do by itself.
That is important as competition and the ever increasing liberalisation of the auto industry in Malaysia means that the gap in pricing between what Proton is offering and what is rivals are has been narrowed. The just-launched Nissan Almera is priced from RM66,000 to just a shade under RM80,000 and is within touching distance of what Proton's cars are priced at.
Without the economies of scale and lower manufacturing costs, it will be difficult for Proton to compete in the affordable car segment as rivals encroach on the price comfort zone that the national car maker has enjoyed for years.
The other aspect of the tie-up is to ensure Proton survives. The continued existence of Proton is essential under the National Automotive Policy as the carmaker is an employer that influences directly and indirectly the welfare of a great number of workers and their families.
In the end, the partnership should be about the progression of Proton. It should use the deal as a means to grow itself as an original equipment manufacturer, a maker of cars not just for the domestic market but one that is exported around the world.