Global Insight Perspective | |
Significance | The future of Malaysian national carmaker Proton looks increasingly uncertain as the government has stated that it is open to selling its 43% stake in the company to any qualified investor. |
Implications | It has long been acknowledged that Proton needs a strategic partner, preferably a global carmaker, to secure its future. However, disagreements over ownership and management autonomy have made a deal impossible up until now. |
Outlook | National carmaker Proton suffers from quality and image problems both at home and abroad, and desperately needs a partner to fund the development of new vehicles. With the Malaysian car market having suffered a 37% fall in sales in October, the need for Proton to find a viable buyer becomes more pressing as the government looks to get the loss-making company off its books. |
Malaysian Government Open to Offers for Proton
The Malaysian government has stated that it is willing to sell its stake in national carmaker Proton to any qualified investor, according to a Dow Jones International report. Confirmation of the Malaysian government's new position came yesterday from Finance Minister Nor Mohamed Yackop. Previously, the government had been unwilling to allow its controlling stake in Proton to fall into foreign ownership. This condition stymied an alliance that had been in the offing between Proton and Volkswagen (VW) in 2005, with talks finally collapsing completely in January of this year. The government owns a controlling 42.7% stake in the company through investment vehicle Khazanah Nasional. It has been reported that the government's change in policy has seen VW re-engage in talks over the possibility of acquiring the controlling stake in Proton. PSA Peugeot-Citroën had earlier signed a memorandum of understanding (MoU) with Proton to look at potential marketing and technical synergies (see Malaysia: 18 September 2006: PSA and Proton Sign Agreement to Study Alliance Options). However, the company has denied reports that it is also engaged in talks to acquire the Malaysian government's Proton stake. A PSA spokesperson said, "We have a team that's working hard with Proton to determine if and how we can collaborate, but the discussions don't involve Peugeot-Citroën acquiring an interest in Proton."
Malaysian Companies Also Interested in Stake
It has also been reported that two Malaysian companies are seriously looking at acquiring the government's stake in Proton. The Naza Group, which assembles cars in Malaysia under joint-venture (JV) agreements with Kia and Peugeot, has expressed an interest, as has DRB Hicom, which has alliances with Isuzu, General Motors (GM) and Honda and is controlled by the politically well-connected businessman Syed Mokhtar Albukhary. Speaking about his company's interest, Naza Group Chief Executive Nasimuddin Amin said, "We submitted a letter of interest to the Ministry of Finance about two months ago and we are waiting to hear from them." However, it appears that the government is sceptical about the ability of the two local contenders to provide the resources required for Proton to become a globally competitive carmaker.
Outlook and Implications
Proton is facing something of a crisis at the moment following a catastrophic decline in its share of the domestic Malaysian market, on which it is largely dependent. Proton has seen its share of the local passenger car market fall from around 60% in 2001 to 36% in 2005. Furthermore, the company is under even more pressure as a result of a decline in the overall market in 2006. Vehicle sales in Malaysia fell by 37% year-on-year (y/y) in October alone. This has meant declining sales and mounting losses for Proton, with the Malaysian government effectively propping up the ailing company. The company has also struggled to develop any kind of meaningful export volumes, vital to the chances of it becoming an economically independent carmaker. The company's combined export volumes were a paltry 7,138 units in 2005, in comparison to domestic sales of 166,812 units.
There may be a degree of expediency in the decision to offer the stake to all-comers at this time. The fiercest opponent of any move to sell Proton to a foreign carmaker is the company's founder, former prime minister Dr Mahathir Mohamad. Despite being retired from office, Mahathir is still an enormously powerful and influential figure and he has been hugely critical of his successor's handling of Proton. However, Mahathir is currently recovering from a heart attack he suffered on 9 November and has not been able to exert his usual influence. In truth, Proton's best chance of remaining a volume carmaker is to form a meaningful technical alliance with a foreign manufacturer. The only way this will happen is for a deal to be done on the terms of the buyer, not the other way round, as has been the case in the past. Although Malaysians would prefer to see the company remain in Malaysian hands, this would not guarantee the future of the country's number-one carmaker. This is especially true as the Malaysian automotive market is about to undergo another round of liberalisation as a result of the Association of Southeast Asian Nations (ASEAN) Free-Trade Area (AFTA) agreement, thus making it even harder for Proton to defend its market share in its home country.