Should Proton be sold into foreign hands?

Photo: Phalinn Ooi/Wikimedia Commons

Malaysian car maker Proton could be about to make a partnership deal with a foreign car firm that will release the funds needed to keep the firm afloat.

By Holly Reeves

Malaysia’s once-proud carmaker, Proton, could be about to partner with a foreign carmaker to make good on a government deal to get over $365 million in state aid. This is vital for the good of the country, and the economy, around 40,000 people are dependent on the company as employees or those of connected companies.

Reports coming from sources close to Proton Holdings Bhd (PHB) suggest the owners of French firms Peugeot and Renault, as well as Japanese-run Suzuki, had responded to a partnership proposal from PHB. A Paris-based spokesman for PSA, Peugeot’s parent company said, “Peugeot confirms it is responding to a request for proposals initiated by Proton and its shareholder.” The spokesman gave no further details on whether the response was positive or the terms of the deal on offer.

A fall from grace

It feels a sad fall for the national treasure, now fallen on hard times. Proton was once the jewel in the former Malaysian leader, and later Proton chairperson, Mahathir’s push to industrialisation. At one time it held a domestic market share of 74%. However, business has not been good in recent years, and the company has had to fall back to government support to survive, taking $365 million in financial aid in April this year to cover bills and outstanding payments to vendors. 

And securing and sustaining this government funding is a key reason behind the new approach to foreign firms. Another windfall of $365 million is cleared for release to the company in 2017, but if – and only if – they can find a stable partner. This is thanks to conditions of the payout, which also requires PHB to have presented a restructuring plan to a government committee and a deal is done with a “strategic and renowned partner” that could work hand-in-hand with the Malaysians to return the company, and its dignity, to its former glory.

But this is not an easy time to be investing in the Malaysian automobile market. Car sales have been low for some time. This month has, so far, rallied a little according to figures from the Malaysian Automotive Association, with total industry volume, including commercial and passenger vehicles, growing 23% to 52,312 units in August from July,

Bouncing back

However, sales have still shrunk a considerable 2.1% in August versus the year before. This doesn’t seem a huge drop, but sales for the month before were down a huge 28% for July year-on-year on the back of slowing economic growth and the higher cost of living in the country and the region.

There is hope though, say industry insiders. “Total industry volume should improve further in the coming months given several new model launches by year end,” said MIDF Amanah Investment Bank’s analyst Hafriz Hezry. He kept the total industry volume forecast at 593,302 units for 2016, a contraction of 11% from 2015’s sales.

So what’s in it for foreign partners interested in investing in the Proton set up? It has not served current owners DRB-Hicom well; they have been selling off assets to provide more liquid capital, supposedly due to ongoing losses from the Proton part of their operations. In fact, their shares jumped off the back of talk of a sale. However, under the management of an experienced car manufacturer Proton does have a good amount to offer.

There are two already-established facilities and bags of good will from the government to make the operation work. According to industry insiders a new owner could ramp up production to as many as 400,000 vehicles a year which could be exported all around Southeast Asia. Proton currently produces just over 100,000.

Breaking down barriers

However, what must also be considered is the atmosphere of protectionism that has dogged Proton for decades.  For Proton to evolve this will need to be rolled back; allowing more foreign cars into Malaysia is the price to be paid for helping the national brand to grow overseas in return.

operation to secure a partnership deal. A previous round fell apart when the Malaysian government refused to offer a majority stake to either Volkswagen or General Motors, preferring to keep the firm in Malaysian hands. But when the situation is make or break is there any other choice but sell off the crown jewels?

Much like the power of the man who brought the company to the peak of its success, Proton’s glory has faded. Mahathir cannot get people to listen to his ideas. Proton cannot get people to buy their cars. Maybe it is time to let someone else have a try.