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Malaysia's Proton partner search flushes out 3 carmakers with eye on ailing firm: sources

Friday, September 23, 2016 - 16:41
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At least three firms including Peugeot maker PSA have signalled interest in a deal with ailing Malaysian carmaker Proton, people familiar with the matter said, as the faded brand's owner seeks to sell a stake in a company once seen as a symbol of the country's drive to industrialise.

[KUALA LUMPUR] At least three firms including Peugeot maker PSA have signalled interest in a deal with ailing Malaysian carmaker Proton, people familiar with the matter said, as the faded brand's owner seeks to sell a stake in a company once seen as a symbol of the country's drive to industrialise.

The search by Malaysian conglomerate DRB-Hicom is the latest in a long series of efforts to find a partner to help revive Proton after years of profit being hit by sub-par cars, poor after-sales service and tough competition. The government gave Proton RM1.5 billion (S$503.91 million) in financial aid in April.

A Paris-based spokesman for PSA said, "Peugeot confirms it is responding to a request for proposals initiated by Proton and its shareholder." The spokesman declined to comment on what PSA's response would be, or the nature of the proposals requested by Proton.

One person familiar with the matter said Proton sent partnership proposals to nearly 20 carmakers earlier this year. Japan's Suzuki Motor Corp and French carmaker Renault SA are also responding to Proton's request for proposals, people said.

Suzuki and Renault officials declined to comment.

While Proton's fortunes have waned since its 1990s heyday, the potential attraction for foreign partners would be access to its under-utilised manufacturing capacity: Proton has two manufacturing facilities in Malaysia that can make up to 400,000 cars annually, though it sold just 102,000 cars last year.

Foreign firms could look to make their cars in Proton's facilities to export around the economic growth hotspots of Southeast Asia, people familiar with the matter said.

These people declined to be identified because the discussions around Proton's future were confidential.

DRB-Hicom has not ruled out selling a majority stake in Proton, the people said, and may also consider selling British sports and racing car brand Lotus, owned by Proton.

Proton and DRB-Hicom did not immediately respond to requests for comment.

Founded in 1983 during former Malaysian premier Mahathir Mohamed's industrialisation push, Proton at its peak boasted a domestic market share of 74 per cent in 1993, largely re-badging cars of foreign manufacturers to sell in the domestic market.

But after years of being plagued by quality and service issues, and with move to produce its own models failing to impress consumers, its market share has plummeted to about 15 per cent.

DRB doesn't disclose Proton financial statements separately, but said it incurred a pre-tax loss of 821.27 million ringgit in fiscal 2015, largely due to losses from Proton.

While agreeing to support Proton in April, the government said its business model wasn't sustainable, and that it needed to find a strategic foreign partner.

Industry players say Proton also badly needs research and development support from a foreign partner if it is to build a viable future strategy.

"If Proton need to develop their own technology or design, they need more money," said Titikorn Lertsirirungsun, Asean manager at consultancy LMC Automotive. "But this is a big challenge for Proton given that its production volume is very low."

Industry watchers expect the potential terms of any prospective partnership - including whether a majority or minority stake of Proton is to be sold - may determine whether the current revival drive fares better than previous attempts.

In 2007, for instance, Proton's search for a foreign partner attracted industry giants Volkswagen and General Motors. But talks with the pair were called off after Malaysia declined to give them a controlling stake.

REUTERS