Tuesday, February 07, 2017

Statement by DRB-Hicom on PROTON Holding's Foreign Partner search - My opinions are included free of charge

DRB-Hicom, who are the owners of PROTON Holdings, the Malaysian car company has issued a statement (which is posted down below) in response to the latest round of media reports on the future of Proton and who is in the running to 'take over' or enter into a partnership with Proton. This depends on which angle the journalists are writing from. 


Anyway, what the statements basically states that the foreign strategic partner (FSP) they are seeking has to suit what Proton stands for as the national car manufacturer as well as one which is able to collaborate on three aspects - a strategic, operational and cultural aspect.  

This strategic part of it will ensure that PROTON can achieve economies of scale from its domestic operations and then expand into ASEAN as well as beyond. With the Proton badge intact.  The operational fit with the FSP ensures that both PROTON and the partner will complement each other’s strengths - a chemistry of sorts according to DRB-Hicom. 

Of course, all of these are technically fillers. The publications were speculating on who is going to partner Proton. DRB-Hicom  and even Proton have stated before that they will finalise the FSP dealings by the middle of this year. They are still firm with their decision. If you're interested to find out you're going to have to wait till then actually. All of this came up because some names were thrown into the picture. Especially Geely.

Now China car manufacturer Geely has been thrown into the mix. Geely could be a good match actually. Aside from marketing cars under their own brands - Geely, they own Volvo Cars, The London Taxi Company, Shanghai Maple, Drivetrain Systems International. 

The company has the capabilities and know how that can complement Proton. They have a lot to offer. Drivetrain and powertrains from Volvo on one end to transmissions, commercial vehicles and a whole lot of other stuff and both ends of the spectrum. Imagine this collaboration taking advantage of Volvo cars latest generation of hybrid technology and premium quality expertise. Imagine all of the improvements that Geely's engineers who, being a China car manufacturer, are experts in reverse engineering come up with a Rolls Royce clone within a short period of time. Imagine the cost savings in prototyping. Imagine the costs of cheaper gearboxes, electronics and other cost savings. The cars could be better and cheaper.

Of course, this works both ways. Buy taking over or buying up a piece of Proton, Geely can actually gain access to some brilliant ride and handling engineers from Proton and Lotus. A lot of avenues actually. 

Some may say that why has a China company now come into the picture after some people speculating the PSA (Peugeot) Group or some other European and Japanese manufacturers. But going by the current sentiment where the is a whole lot of China investment money floating around South East Asia and Oceania (you should ask your friends in Australia & NZ and see how much PRC money is being thrown about there) this could be a very realistic suggestion by the journalists which first bought the matter up (the Star newspaper actually). 

I personally think that if Geely is the One it could be a good thing. There is nothing wrong with China money here, there and everywhere (remember the para above - Australia and New Zealand). Last time we tried Japan during the Look East policy. We're still looking East aren't we? 

Now why Geely is a good thing is this - Volvo Cars is owned by Geely and what I was told by some senior executives from Volvo Cars was the fact that Geely actually leaves Volvo Cars alone without much inteference. They basically did the "Here's some cash, build some cars and report to us weekly on the progress". Surprisingly Volvo Cars seem to be doing quite alright. I mean look at the XC90 SUV. It is stupendous. The brand is now regarded highly again over in North America and in Europe. It is no mean feat after the brand was almost wiped out by Ford.

This is why I believe Geely is a very good bet for Proton. More so than even Suzuki in some ways (which produce similar type of cars in the same categories) and more than the PSA Group - which is French. There is nothing wrong with the French except that when the French cars were branded as Protons or had French hearts (Tiara nee Citroen AX, Waja 1.8 with the Renault engine), Malaysians baulked. I do not know if this is the way to go with such market sentiments. Maybe this route with Geely is the best bet. 

But what the heck would a chap like me know. Which is why I do hate speculating. I could go on and on about what could happen or what could not happen. I won't. It's just pure speculation. Come the middle of 2017 another unmentioned company could have actually bought shares in PROTON. 


PRESS RELEASE                                           FOR IMMEDIATE RELEASE

FOREIGN STRATEGIC PARTNER KEY PART OF PROTON’S SUCCESS

SHAH ALAM, 7 February 2017: DRB-HICOM Berhad (DRB-HICOM), as 100%

owner of PROTON Holdings (PROTON), believes that PROTON can be a more

successful carmaker once a foreign strategic partner (FSP) is on-board. The entry of

a FSP will enable PROTON to revitalize itself through access to new platforms,

powertrains and technologies which will further improve PROTON’s range of

products and its quality.

This revitalization of PROTON’s market share underlines DRB-HICOM’s intent to

keep the brand as a player in the automotive market. PROTON has been in the

market since the mid-1980s, and it has some brand equity in the domestic market,

despite past and current challenges.

DRB-HICOM remains committed to revive PROTON’s fortunes, and finding the right

FSP is critical to that goal. History has shown that collaborations between a smaller

carmaker and a larger carmaker can revive the former’s fortunes. DRB-HICOM is

confident that with the right FSP, PROTON will enhance its brand equity can again

be a successful carmaker as it was in the 1980s and 1990s.

THE RIGHT FIT FOR PROTON

In finding the right FSP for PROTON, DRB-HICOM will evaluate three key criteria,

which are strategic, operational and cultural fit.

A strategic fit will enable both parties to derive tangible benefits from the range of

technology and products available, which will complement each other’s needs in

their own markets. This strategic fit will also ensure that PROTON can achieve

economies of scale from its domestic operations. In evaluating the potential partners,

DRB-HICOM will insist that the PROTON badge and its technology will be expanded

into ASEAN markets first and global arena subsequently.

An operational fit with the FSP ensures that both PROTON and the partner will

complement each other’s strengths. The structures that exist within each company

must be able to blend well so as to achieve seamless operation at PROTON and the

partner themselves.

As in any collaboration, a cultural fit will ensure a successful union. This “chemistry”

between the two parties will be critical in pushing PROTON forward while enhancing

the FSP’s own operations vis-à- vis their short and long-term plans.

These criteria are aimed at ensuring that both parties will be able to achieve each

other’s strategic targets as quickly as possible and with minimum interruptions to

business operations. With a close fit that matches the items listed, DRB-HICOM is

confident the venture will be beneficial to all parties.

PROTON WILL BENEFIT THE FSP TOO

Contrary to common belief, PROTON too has plenty to offer to the eventual FSP.

First, they will have at their disposal PROTON’s own range of affordable cars, such

as Persona, Saga, Preve and Iriz. These cars are manufactured to high production

standards and meet global safety standards. Any carmaker that is on board with

PROTON will be able to find a range of cars to offer specific markets across the

globe.

Secondly, one of the immediate advantages available to any carmaker partnering

with PROTON is the ability to immediately increase their production capacity through

PROTON’s Tanjung Malim Plant in PROTON City. The plant has a low utilization

rate presently, and optimising the use of the modern facility will also benefit the local

workforce. This means Malaysians can benefit from increased employment

opportunities with full capacity utilisation at the plant.

Finally, PROTON has its own in-house research and development team, as well as

the lightweight platform technology of Lotus Cars UK. The combined engineering

capabilities of PROTON and the legendary Lotus Cars offers a FSP enhancements

to their current capabilities, which will enable them to enhance their existing R&D

capabilities.

PROTON IS A NATIONAL CARMAKER

It is important to point out that DRB-HICOM’s search for a FSP for PROTON is a

critical exercise to ensure the sustainability of the national carmaker. As a local

company, DRB-HICOM is proud to be the owner of the first national and ASEAN’s

only car manufacturer.

We have stated before that we will maintain a significant equity in PROTON, and this

has not changed. The FSP search is not about shirking our national responsibility but

about enhancing PROTON as a bona-fide carmaker, and eventually putting them,

and Malaysia, on the global map.

As a responsible shareholder, as part of the evaluation, DRB-HICOM shall also

assess the intention of the potential partners in utilizing the current “home-grown”

vendor network. This is a very significant element in our evaluation, as DRB-HICOM

who also own subsidiaries serving PROTON as vendors, would avoid for these

“home-grown” network to be diluted substantially.

STATUS OF SEARCH

As we have stated previously, the parties have conducted their own due diligence on

PROTON over the past weeks. DRB-HICOM is now waiting for the submission of

bids from the parties, after which an earnest evaluation of the bids will commence.

Also as stated previously, we aim to complete the selection by the first half of this

year, although we strive to conclude it earlier and this remains the target for DRB-

HICOM.

-Ends-

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