PROTON and Geely Holding Group had earlier today signed a Heads of Agreement to set up a joint-venture arrangement that will allow PROTON to assemble and market their cars in China. This was done during Prime Minister of Malaysia, Tun Dr Mahathir Mohamad ongoing visit to China. The Joint Venture arrangement will include the set-up of a production plant in China and also develop a network of Proton Car dealerships in China.
For the China market, Proton will actually be using existing Geely vehicle platforms with Proton doing the design and styling of the cars. The heads of agreement (which is quite like a memorandum of understanding - MoU, where the complete details have not been worked out as yet) also states that existing PROTON platforms that are found suitable to be sold in China will be developed into models for the Chinese market.
According to what we have been speculating together with other industry observers was that this arrangement was bound to happen. In the weeks coming to this JV arrangement, Tun Mahathir (seen below in a Geely vehicle) had been very vocal about the automotive industry, with Proton and a third national car project being mentioned.
For Proton, Tun Mahathir actually stated that he wanted Malaysians to actually gain from the venture in terms of knowledge and experience. To him, it is not going to be a one-way street where Geely just takes things easy, brings in their own people, vendors and parts but does not part their knowledge and skills to locals. He wants everyone to benefit and not just the party buying into the company. He has also stated that foreign car companies have it easy entering Malaysia, but he is quite disappointed that it is hard to do so the other way round.
It does make sense. This is aside from the fact that most Malaysians know that Proton, or the Malaysian automotive industry, is deeply entrenched in his heart and he is willing to even push for a third national car if things aren't done with a clear vision to help Malaysians gain knowledge and skill (putting it mildly). So now, it seems that Geely wants to tango with this idea and are willing to lend a hand.
According to what I have heard, the current management of Proton here in Malaysia is very accomodating, as is Geely. This is why the Heads of Agreement was entered into during Tun Dr. Mahathir's trip to China. I believe the people at Geely know that allowing Proton to venture into China may benefit relations between Malaysian and China in the long run. Geely has been tapping into Proton's right hand drive manufacturing expertise, chassis development as well as incorporating Proton Design Studios into Geely's international network of design and styling studios. So they have been busy with Proton.
Now, since there is a 'request' to ensure that the trade-off isn't one sided, Geely is playing ball. There is still an advantage to Geely as the arrangement allows the use of Geely engineered platforms and drivetrains. Proton would only use its styling. So the bulk of the car is still Geely with a re-skin by Proton, and we all are aware of how good Proton's styling team is when it comes to a re-skin as cost effective as possible - Think Proton Perdana, Persona and Iriz, these cars were done under a very tight budget and they came out decently well.
Aside from that, allowing Proton to try penetrate China could be a good thing. Geely has many brands selling in China, one more brand will not hurt them as the passenger car market over there is super huge. As an example, Proton sells 50,000 units of a re-skinned Boyue and other cars over in China, it may be a small amount in China (Geely sells over 20,000 units of their Boyue SUV in China monthly and over a million cars in total every year). But for a company like Proton, selling 50,000 units in total of something like an Iriz, Persona or Boyue rebadge, over in China would actually mean an almost 90% jump in total sales of Proton for that year. Proton on average sells about 60,000 cars in Malaysia annually. I think this is what Tun Mahathir is after, a little bit more for Proton, but for Proton, it actually is a heck of a lot.
As for Geely, no loss as they are the ones supplying the platforms and they are the ones managing Proton at this point of time. If this venture succeeds, they still benefit if you look at the arrangement properly. And many pundits also believe that the China car market can actually take another brand or three. It is that huge.
So there is a chance where Proton will actually regain back some of its past glory under Geely. They have restarted exports for Proton to the Middle East and they have also done a whole lot of local activities to push up Proton's brand presence and image.
Geely is not sitting still from what I have been experiencing also with the recent activities like the new 3S / 4S centre openings, Proton 1 tank adventure, Proton Skills Competition for their technical staff and other brand enhancing initiatives with local higher learning centres - the recent Proton Ertiga & Exora Ace the Space Challenge where they actually managed to get 55 college kids into an Exora MPV for a place in the Malaysia Book of Records. It is more about improving the brand before the new products are there.
I have been taking time to observe Proton these past few months has been truly interesting for me. It is national pride, and national interest to many of you too. Let's see what comes next.
Standing: Mr Li Shufu, Chairman of Geely, YAB Tun Dr. Mahathir Mohamad, Prime Minister of Malaysia, HE Bai Tien, Ambassador China to Malaysia.
Seated: En Shaharul Fareez, Chief Operating Officer of DRB-HICOM & Board of Director of PROTON, Dato’ Sri Syed Faisal Albar, Group Managing Director of DRB-HICOM & Chairman of PROTON, Mr An Conghui, President & CEO of Geely, Mr Daniel Li, Executive VP & CFO of Geely.
OFFICIAL PRESS RELEASE
PROTON, Geely sign JV agreement to set up facilities in China
Hangzhou, China, 18 August 2018: PROTON Holdings Berhad (PROTON) and Zhejiang Geely Holding Group (Geely) today signed a Heads of Agreement to set up a joint-venture that will pave the way for PROTON to assemble and market their cars in China. Both companies take up equal equity in the yet-to-be-named joint-venture company (JVC).
In an announcement today, DRB-HICOM Berhad (DRB-HICOM) said the venture includes the set-up of a production facility in China which will assemble vehicles, and the development of a network of dealers to market the PROTON range in China.
The portfolio of cars for China will primarily come from existing Geely platforms, although the external design of the vehicles will be undertaken by PROTON themselves. However, the agreement also provides for existing PROTON platforms that are found suitable to be developed into models for the Chinese market.
DRB-HICOM Group Managing Director, Dato’ Sri Syed Faisal Albar says, Geely’s entry as a strategic partner to PROTON has paved an easier route for PROTON’s entry into the lucrative Chinese market.
“Clearly with Geely on board, PROTON’s route into China has become more tenable. Part of Geely’s role is to secure the manufacturing licenses and regulatory approvals required for such a venture under China’s regulations. Geely will also identify a suitable location where the manufacturing facility is to be based”, says Syed Faisal.
He added that existing PROTON component vendors that have quality and a competitive edge may also be considered as suppliers for the JV company. This should sit well with the Government of Malaysia that has often prodded Malaysian component makers to venture into the Chinese market.
Prime Minister Tun Mahathir Mohamad had lamented previously the lack of Malaysian car exports into regional markets, despite Japanese, Korean and Chinese brands making their way onto Malaysian shores.
China’s passenger car sales have grown tremendously over the last 10 years. In 2008, 6.76 million
passenger cars were sold in China, but it has grown to over 24 million units in 2017. Geely is a clear
leader in this, being the first privately-owned Chinese carmaker to sell over 1 million units domestically in a calendar year. In 2017, it sold more than 1.24 million units, carving out a 5.06% market share. In the first six months of 2018, Geely moved an average of over 125,000 units of their models a month, with the Boyue SUV passing the 20,000 mark every month except in January, when more than 30,000 Boyue SUVs were sold. The localised version of the SUV is set to be launched in Malaysia in the final quarter of 2018 as PROTON’s first-ever SUV.
Both parties target to incorporate the JV within the first half of 2019, subject to obtaining all regulatory approvals.
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