Things don’t look too good for Proton Holdings as it continues to search for a foreign partner, according to a report in the Nikkei Asian Review (NAR).
Two foreign car makers, who had been rumoured to be among those being wooed by Proton may opt out, and the car market in Malaysia is not growing enough.
Also, a new partner may ask for cost cuts, including laying off workers and this has political ramifications.
According to the NAR report, most observers expect Proton to have a difficult time regardless of its proposed partner.
Sanshiro Fukao of the Hamagin Research Institute identified two key obstacles standing in the automaker’s way.
First, the Malaysian market was not expected to grow, he was quoted as saying.
New-car sales seems to have topped out at a little over 600,000 units a year. Tough competition also means that automakers are racing to the bottom on price.
“Malaysia is also a tough place to utilise as an export hub,” Fukao told NAR.
Malaysia had few suppliers with advanced technological expertise, and was less competitive than neighbouring Thailand or Indonesia when it came to auto exports, the report said. Wages are also high.
A Malaysian analyst raised politics as another business risk, NAR reported.
Proton directly employs about 10,000 people, but its two plants are operating at just about 30% capacity. Major layoffs will be inevitable under a reconstruction plan led by a foreign partner, but it is unclear whether the Malaysian government will agree to such a move.
Proton has unveiled four new models since June in a bid to turn the tide, but it still sold 40% fewer cars in the year from June to October.
The longer it took for the company to find a partner, the less chance it had for a successful turnaround, said the NAR report.
Proton commanded a 52% share of the Malaysian market back in 2001, but now controls just over 10% and is struggling to pay its suppliers, added the report.
The government provided assistance to Proton in June, including a RM1.25 billion subscription to Proton’s convertible preferred shares. This support came with a condition that the automaker secure investment from a foreign partner within a year.
Proton sent letters to 14 major companies but just three are still in the running, according to CEO Ahmad Fuaad Kenali, who did not reveal their names.
Market watchers had considered Japan’s Suzuki Motor to be the front-runner for the deal, given its business partnership and supply agreement with Proton signed in June 2015.
But one Suzuki executive said taking a stake in the Malaysian automaker would be “difficult”, NAR reported.
“Suzuki decided to do the partnership largely because its chairman, Osamu Suzuki, has personal ties with Proton’s de-facto founder, [former prime minister] Mahathir Mohamad,” an industry source told NAR.
But Mahathir stepped down as Proton chairman at the end of March amid his feud with current Prime Minister Najib Razak, and the companies’ relationship is showing subtle signs of change, according to the NAR report.
It said Kinji Saito, Suzuki’s executive general manager for global automobile marketing, declined to comment when asked whether the automaker wanted to invest in Proton.
NAR reported that China’s Zhejiang Geely Holding Group was seen as a strong contender but now Geely has told NAR that a capital tie-up with Proton was nothing but a rumour.
Geely told NAR on Thursday that it had once negotiated for a technological partnership with Proton but never reached an agreement.
Original article from http://www.freemalaysiatoday.com/category/business/2016/11/25/protons-future-looks-dim-says-report/
