Proton Shows Signs of New Life
By Brendan Moore
Something’s happening with Proton lately and it is fairly clear what it is – speculation regarding a long-awaited tie-up with a foreign automaker looks as if it might actually happen.
At the same time, the Malaysian auto maker, who is controlled by the Malaysian government, is moving into Formula One racing in order to publicize the Proton brand. The company announced last week that its sports-car maker, Lotus, will be forming a race car team that will race in 2010 in Formula One.
Additionally, the Malaysian government is conducting an overall review of their national automotive policy that is expected to bring about some changes in trade policy and tax policy that will be even more favorable to local auto manufacturers (read: Proton).
All of these things happening simultaneously have driven up Proton’s stock price almost 62% in the past thirty days, and therefore have people excited about the Malaysian auto sector.
The foreign automaker here in this mix is Volkswagen, a previous suitor of Proton. Volkswagen took a pass on doing a deal with Proton in 2007 because it couldn’t get Proton and its owner, the Malaysian government, to give up an equity stake in the company, but now Volkswagen is interested in a joint venture even without equity participation.
The ten-country Asean region, which Malaysia is part of, is just looking too attractive for local automakers to ignore, and VW can be classified as a local automaker if it enters into a local manufacturing agreement with Proton. A non-local manufacturer is subject to tariffs and duties in the 570 million-person region.
Proton Managing Director Syed Zainal Abidin mentioned in a press conference last week that Proton and VW are currently talking again, but did not respond to questions for more details. It is believed, however, that VW is very interested in a Proton plant north of Kuala Lumpur that has operated considerably below capacity for years as the way into the Southeast Asian market.
What does Proton get out of a joint venture with VW?
Proton gets a shot at current engineering technology and current manufacturing technolgy, which will allow them to update their lineup of cars, something they desperately need to do. They will also be able to raise the quality of their vehicles, another improvement that Proton very much needs.
Proton had over 70% of the auto sales in Malaysia at one point, selling warmed-over Mitsubishi platforms, but since the market opened up several years ago, it has been besieged by Japanese competition, and is now down to less than a 30% market share.
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