Proton for PSA, Lotus for Geely?

  • Business
  • Saturday, 18 Feb 2017

FILE PHOTO - A worker checks new Proton cars at a yard near Kuala Lumpur January 12, 2009. REUTERS/Zainal Abd Halim/File Photo GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH BUSINESS WEEK AHEAD 13 FEB FOR ALL IMAGES

DRB-Hicom Bhd is most likely to sell a controlling stake in Proton Holdings Bhd to French auto giant PSA Group, which produces Peugeot cars, according to sources.

“PSA is ready to invest a lot of money in Proton and build a new plant in Tanjung Malim, Perak. It has presented the best proposal to rescue and expand Proton’s operation in Asean,” the source says.

But Chinese car manufacturer Geely Automobile Holdings Ltd, the other contender to buy a 51% stake in Proton, may be offered a proposal to take over Lotus from Proton.

In earlier negotiations with DRB-Hicom, Geely had expressed more interest in acquiring Lotus, which produces sports cars, rather than the whole of Proton.

“Proton is of no use to Geely. It wants Proton because of the auto technology in Lotus. And for PSA, which is strong in sport-utility vehicles (SUVs), it is not keen on Lotus,” says the source.

Indeed, China’s government has been encouraging its auto companies to acquire technology that it lacks. The auto sector has been identified as a weak segment within its manufacturing sector.

Invitation by DRB-Hicom for bids to be Proton’s strategic partner closed two days ago. Only PSA and Geely have submitted their proposals, according to press reports.

Proton started the exercise to get a foreign strategic partner more than six months ago after the government gave it financial assistance of RM1.5bil to pay off the vendors of the troubled national car manufacturer.

One of the conditions of the financial assistance was that Proton, wholly owned by DRB-Hicom, needed to secure a foreign strategic partner as soon as possible.

DRB-Hicom recently stated that it would conclude a decision on a technical partner for Proton within the first half of this year. Key considerations include strategy and operation of the potential partner.

According to the source, the French company has proposed to move Proton’s Shah Alam plant to its under-utilised plant in Proton City in Tanjung Malim.

In addition, PSA will build another new plant in the Perak township to raise the production of vehicles to achieve economies of scale and be competitive.

“PSA is a latecomer in this region. Now it sees the opportunity to penetrate the Asean market of 600 million people by using Malaysia as a base to export its vehicles tax-free to any of the 10 Asean members,” says the source.

Among PSA’s proposals that look attractive to Malaysia is a plan to raise the production capacity of Proton cars to one to two million units from 150,000 currently.

PSA also intends to produce SUVs for the Asean market.

If PSA’s grand plan comes to fruition, then Tanjung Malim may be turned into Malaysia’s auto hub.

Besides centralising Proton’s operations, the PSA plan could create 10,000 jobs for the local community, says the source.

It will also help lift Proton out of its prolonged financial troubles, as the government is not prepared to pump in more money into the bleeding company, which was set up in 1983 by former prime minister Tun Dr Mahathir Mohamad as part of the strategy to industrialise Malaysia.

Perusahaan Otomobil Nasional Bhd (Proton) was incorporated on May 7, 1983 to manufacture, assemble and sell motor vehicles and related auto products. It produced Malaysia’s first commercial car, the Proton Saga, in July 1985.

Used to being the market leader in the local auto sector, Proton’s market share fell to 12.5% last year from 15.3% in 2015.

Its total sales fell 29% year-on-year to 72,300 units due to deteriorating market conditions, said Hong Leong Investment Bank Research in a recent report.

On the bids for Proton, StarBiz recently reported that Geely was the frontrunner in securing the valuable strategic partnerhip with Proton. Other media followed suit.

Last year, a senior official of DRB-Hicom was seen in China to conduct negotiations with Geely on the possibility of its entry into Proton. He asked not to be named.

Keen on the Asean market, Geely produces a variety of vehicle types, including SUVs and sedans.

It owns the Volvo brand, which it acquired in a US$1.8bil deal in 2010.

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