22Oktober2017

Why are global players chasing Proton...?

In Malaysian automotive circles, the guessing game has begun in earnest, as to who would emerge as Proton s foreign strategic partner (FSP) and if a deal is now imminent.

Since bid submissions closed more than two months ago, intense negotiations had been going on behind the scene to become Proton's FSC moving forward, with sometimes volatile swings along the way.

One identified bidder, China's Zhejiang Geely Holding Group or Geely, twice told the international media it had pulled out of negotiations with Proton s parent DRB Hicom Bhd, only to backpedal later as they stayed in the race with hopes of gaining control of Proton.

Industry watchers say Geely s on-again-off-again "love affair" is a reflection of the high stakes games being played without the glare of publicity as negotiations with multiple FSP suitors enter the serious stage.

Locked in feverish talks since the February 15 submission deadline are France s PSA Group, which owns Peugeot, Citroen and DS, with Opel and Vauxhall brands recently added, and Zhejiang Geely, owner of Sweden s Volvo and British taxi maker, The London Taxi Company.

Market observers and analysts say this time, there is every likelihood a marriage with a FSP will happen because the profit motive surmounts all the little details and problems, towards ensuring a successful outcome.

Also, the thinking goes, any decision would be purely commercial.

Confirming this was one of the FSPs, with PSA Group Chief Executive Carlos Tavares recently declaring that "the sale of Proton to a successful bidder would be confirmed imminently."

Tavares acknowledged that PSA is not the only party involved in purchasing Proton and that, "the Malaysian authorities say a decision will be made in the second quarter of 2017, meaning an announcement by end- June at the latest."

Proton has become PSA s latest acquisition target to fill a big gap in its ASEAN strategy.

Europe's second biggest auto manufacturer, PSA Group, is thinking of starting a greenfield automotive plant in Indonesia, to manufacture between 300,000-500,000 cars per annum to sell to the booming 10-country ASEAN market.

PSA plans to build a factory for its Southeast Asia market and is on the look-out for a site either in Indonesia, Thailand or Malaysia, so as to reduce its reliance on the challenging, slow growth European market.

This plan takes into account a local partner to help PSA avoid what it calls "beginner's mistakes."

This greenfield approach would cost around US$2 billion and take between three to five years because of the need to purchase large tracts of land, build factories, train several thousand staff from scratch, build an entire vendor eco-system, logistics and the list goes on.

Analysts also say the sheer complexity of setting up a new full-fledged auto manufacturing plant would have been worth it if there was no better route to get a firm footing in the booming ASEAN market.

The key to Proton's future lies in the very essence of its ongoing move in looking for a FSP to bulk up its technology, capital base, research and development, and some quick model changes.

"Our intent is to turn around the fortunes of Proton.

There are strengths and capabilities of the carmaker that, given a new proven partner, who can offer technology, capabilities and new markets, can make Proton a brand to be reckoned with.

This is why the evaluation of the bidders needs to be a detailed one. Proton and the incoming FSP must be able to create synergies that ensure the success of this venture," said DRB Hicom in a statement last month.

This suddenly changed the equation for the entire ASEAN auto market because Proton is the only full-fledged auto manufacturer in the entire regional grouping.

It has 30 years of experience in research and development, designing, marketing, selling and distributing cars, as well as after-sales services. The company also comes with an entire vendor and vendor supplier eco-system.

Malaysia has a unique manufacturing industry which no other ASEAN country has, and in itself, scarcity makes Proton a valuable target.

For Geely and PSA, being in negotiations to acquire Proton is a once-in-a-lifetime opportunity for the two bidders.

If for whatever reason they miss this boat, both may end up paying a heavy price in the future, when Proton falls into somebody else's hands, such as General Motors or Volkswagen or even China s Shanghai Automotive Industry Corporation (SAIC).

They will then be in a position to use Proton to effectively block the growth of Geely and PSA within ASEAN.

Looking at the ongoing consolidation of the automotive industry right across the globe, the stars are aligned for Proton to join a bigger, global-scale automotive group.

In the case of Geely, it has a strong European brand in Volvo but no manufacturing facility in ASEAN.

It is strong in China, but weak in ASEAN. Again, Proton is seen as a natural fit for this region.

The fact is, ASEAN is a top growing auto market in the world. With a population of 600 million, it recorded an increase in vehicle sales by 4.7% to 947,241 units in the fourth quarter of 2016, from 904,504 units in the same period of the previous year, according to AsiaMotorBusiness.com.

For both Geely and PSA, ASEAN is a gaping hole in their geographical footprint, making Proton a must-have acquisition they cannot afford to let slip.

Proton is the only full-fledged car manufacturer in this part of the world. Malaysia has a unique industrial asset which cannot survive in a small domestic market, but can play a lynchpin role as the ASEAN anchor of a larger global auto group.

Prime Minister Datuk Seri Najib Tun Razak had the foresight to push for Proton s regional expansion, when he added the condition of partnering an FSP, when releasing a RM1.5 billion soft loan last year to allow Proton to pay off its vendors.

What Proton brings to the table right now is a "plug and play" for the automotive industry and to catapult the chosen FSP with its collection of car marques into the growing 600 million ASEAN market segment.

The bidders know this and obviously need to put their money and terms -- and promises -- on the table to woo Proton as a groom, a bride.

The big question is which FSP values Proton more and is willing to cobble together a long term deal that makes it attractive for Proton to look east to Geely or leap west in embracing PSA?-26/4/2017

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