Selling Lotus makes sense Sports car maker is not a good fit for Proton

  • Business
  • Wednesday, 28 Dec 2011

KUALA LUMPUR: James Bond stopped using Lotus as his vehicle of choice to fight villains 30 years ago. Investors say Proton Holdings Bhd should follow suit in abandoning the sports-car maker.

Proton, the maker of sedans and taxis that bought control of Lotus in 1996, hasn’t made any profit from the British unit for 15 years and probably won’t at least until 2014.

Now that Proton itself may be divested by its state-run parent, investors such as Gan Eng Peng say Lotus Group International Ltd is ripe for a sale.

“It will make sense for them to sell it,” said Gan, who helps oversee about US$3.6bil as head of equities at HwangDBS Investment Management Bhd in Kuala Lumpur.

“Proton and Lotus are not a good fit. They are in different market segments, both in terms of geography and product.”

Lotus, which has struggled to compete against Porsche AG and Ferrari SpA in Europe, has hung on to relevance in the auto industry partly because of its decades-long expertise in designing lightweight frames.

Still, the company may need the backing of a carmaker more global than Proton to survive in an industry where carmakers such as Saab Automobile are filing for bankruptcy, according to Gan.

Lotus chief executive officer Danny Taner Bahar said he’s confident he could make the company break even by 2014 as long as he had the financial backing.

“The only thing we can do is show the current owners, or the new owners, that we are absolutely in line with the business plan that we have presented,” Bahar, who’s based in Norfolk, UK, said in an interview last week.

“Without the funding support and the guarantees given by the Proton group, we would not survive, end of story.”

Bahar said Lotus, whose cars were featured in the James Bond movies “The Spy Who Loved Me” in 1977 and “For Your Eyes Only” in 1981, would continue to turn to its engineering strengths to stay competitive.

Phil Gott, an IHS Automotive analyst specialising in powertrain research, agrees that Lotus technology is excellent.

Expertise in making lightweight frames, a defining area of strength since its founding in 1952 by British inventor Colin Chapman, had allowed Lotus designs to be a popular option for electric cars, Gott said.

Tesla Motors Inc has relied on Lotus chassis designs since 2008 for its US$109,000 Roadster sports car. Then-Chrysler LLC had also planned to contract Lotus to produce electric vehicles before the Michigan-based company filed for bankruptcy in 2009, emerging as Chrysler Group LLC.

The Lotus Elise weighs 912kg, making it the lightest performance car sold in the United States, according to Santa Monica, California-based

“One of Lotus’ key attributes, part of the DNA, is to go the extreme in achieving the most intelligent and clever technological engineering,” Bahar said.

Lotus’ DNA may share few similarities with that of its Malaysian owner. While Lotus makes sports cars that are sold for as much as RM513,000 (US$163,000) in Malaysia, Proton sells hatchbacks for as low as RM34,000.

Before Proton, Lotus’ owners included the former General Motors Corp, which later emerged from bankruptcy as General Motors Co, and Romano Artioli’s Bugatti International.

Proton’s stock has gained 44% this month as speculation on its sale heated up.

State-owned Khazanah Nasional Bhd, which holds a 43% stake, has since confirmed it received offers. Khazanah officials have declined to comment on Proton’s sale beyond saying it received proposals of interest.

Sime Darby Motors, Naza Group, Hyundai-Berjaya Sdn Bhd, DRB-Hicom Bhd and UMW Holdings Bhd are candidates, a local daily reported on Dec 3. Sime and UMW have said they weren’t interested.

Former Prime Minister Tun Dr Mahathir Mohamad, who founded Proton in 1983, said on Dec 13 that billionaire Tan Sri Syed Mokhtar Al-Bukhary’s DRB-Hicom, an auto assembler, was the best candidate to buy the Government stake and that Proton shouldn’t be sold to a foreign company.

For Proton, whose profit tumbled 76% in the latest quarter, unloading the UK unit may give it room to invest in production facilities as the national carmaker faces mounting domestic competition from Toyota Motor Corp and Perusahaan Otomobil Kedua Sdn Bhd.

Lotus needs about RM2.4bil to help it return to profit, according to OSK Holdings Bhd estimates.

The brand may be worth about RM1bil, or about triple its current value, once it’s profitable, according to Ahmad Maghfur Usman, an OSK Holdings analyst.

For that to happen, Lotus would have to sell 8,000 vehicles a year, he said. The carmaker sold 1,985 units for the year ended March 31, according to its annual report. That compares with Ferrari, whose chairman said in September will probably post record sales of 7,000 cars this year.

Those numbers may be difficult to reach under current ownership.

“Proton is better off without Lotus,” said Alexander Chia, an analyst at RHB Capital. “There are no product synergies.”— Bloomberg

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