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KUALA LUMPUR, 19 March 2017:
Two huge car companies with global operations are now running neck-and-neck bidding for a majority stake of Proton, with both offering many sweeteners to win over the Malaysian car maker.
This may seem odd to Malaysians, who are more accustomed to hearing stories of losses at Proton Holdings Bhd.
But to these bidders, Proton is in fact a very valuable car manufacturing company when placed in a global context – as opposed to one with Malaysia-focused domestic operations – said analysts.
The two international bidders for Proton – Zhejiang Geely Holdings Group of China and PSA Group of France – see things differently and regard it as a strategic fit in a larger global plan for auto domination that is now being played out across the globe by the top auto players.
Proton is also pivotal to them in realising a strategy that has Proton anchoring the Asian leg of a multi-continent automotive footprint, said the analysts who are familiar with such a tie-up.
And the reasons for this are simple.
For starters, Proton to this day remains as Asean’s only full-fledged car manufacturer which does research and development, design, manufacturing, distribution and sale of cars.
Nowhere else in the 10-member Association of Southeast Asian Nations (Asean) does a fully home-grown car manufacturer exist.
This in itself makes Proton unique, because Asean is a strong emerging market with 600 million people, whose rising income pulls them to car showrooms to purchase their first car.
Proton is strategic in several ways – first being the only car manufacturer in Asean and second, its operations can be quickly bolted on to a bigger global player such as Geely and PSA, while third, it is located right in the centre of Asia, the world’s fastest growing economic region.
Proton’s Shah Alam and Tanjung Malim assembly plants have a combined capacity of up to 400,000 cars per annum.
Large foreign auto players are aware that Proton sits on a ready-made auto eco-system and infrastructure. It would be ‘plug and play’ for any auto player that wants to expand into the Asean region.
Yes, it has been argued that either Geely or PSA could easily start a fresh “greenfield operation” – say, in Indonesia with abundant labour, land and a domestic population of 250 million.
The analysts argued that the mathematics of doing a greenfield car manufacturing operation will run in excess of US$2 billion and will take three to five years to complete.
It will also need to train an entire workforce of thousands from scratch and develop a vendor ecosystem which is not there at the moment and the list goes on.
This “greenfield option” was actually mooted by PSA as its first option to establish a manufacturing footprint in Asia, until Proton came along looking for a foreign strategic partner.
This was a turning point when PSA decided to focus its attention on Proton, a car manufacturer with 30 years of hands-on experience whose vendor eco-system spans the A to Z of car manufacturing.
The Proton route is much preferred by PSA – which described the move a clear way “to avoid beginners’ mistakes” when entering Asean.
PSA ought to know. After all, with its purchase this month of Vauxhall in the UK and Opel in Germany from General Motors, it has become Europe’s second largest car manufacturer.
However, Europe’s growth is anywhere between slow and anaemic, while Asia is fast and robust. And it is in Asia that PSA lacks a full-fledged auto manufacturing facility.
“If PSA as bridegroom succeeds in wooing the bride Proton, then the Malaysian brand will join such storied global marques as Peugeot, Citroen, DS Automobiles, Vauxhall and Opel,” the analysts noted.
Another car player courting Proton is Geely, a prodigy of sorts in the auto industry, having produced its first car in 1998 and in a bold move acquired ailing Volvo of Sweden from Ford in 2010 and in very quick time turned the brand around into a healthy global competitor.
Geely also went on to buy out the British taxi maker The London Taxi Company.
Through Volvo, Geely has a strong global brand but no manufacturing facility within Asean, making it strong in China but weak in fast growing Asean. Again, Proton can step in to fill this gap.
RHB Research analyst Alexander Chia said recently that what Proton needs is a foreign strategic partner who can help it with a new model development, technology transfer, management of development costs, implementation of a more cost-effective manufacturing processes, penetration of new markets and revitalise the Proton brand.
“Proton’s products typically have an extended life cycle due to a lack of economies of scale where it takes a longer time to sell the requisite number of units to adequately amortise development costs.”
With a foreign strategic partner, the picture ahead for Proton will be almost unrecognisable.
Within three years, the analysts expected Proton to come out with a slew of new models through technology and platform sharing as well as an entire new line-up of currently non-existing SUVs.
The analysts also reckoned that in three years, Proton will be a truly Asean brand with sales of around 300,000 or three times its current volume, and within five years that figure will climb to 500,000 as Proton exports its cars outside Asean into greater Asia.
And by 2020, Tanjung Malim will be a major automotive hub whose population will swell to accommodate the many thousands of new workers that need to be employed to manufacture three times and then five times as many cars as Proton is rolling out today.
No doubt DRB-Hicom Bhd will be rewarded for having bought Proton outright in 2012, weathering a tough few years and finally seeing Proton married off to an international suitor.
DRB is right all along that Proton is a valuable Malaysian company and now two international auto companies have confirmed this by voting with their dollars to partner Proton and grow it into a global brand.
In three years, looking back to 2017, it will seem obvious that partnership for Proton with a global player has put it on the right lane to international success, as opposed to maintaining full Malaysian ownership in a domestic market.
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