In Cars, Local News, Proton / By Jonathan Lee / 11 April 2017 12:19 pm / 128 comments

In a major turn of events, Proton is reportedly seeking additional funds from the government exactly a year after the latter agreed to provide RM1.5 billion soft loan; Geely, meanwhile, has apparently returned to negotiations to become the national carmaker’s foreign strategic partner (FSP), having told a Chinese newspaper it had pulled its bid last month.

The Edge Malaysia, quoting several sources familiar with the matter, stated that Proton is requesting between RM1.5 billion and RM1.8 billion from the government to cover massive losses in its operations. The company is expected to record major losses in the financial year 2017 in the midst of slowing sales, based on the RM1.426 billion net loss it reported in FY2016 ending March 31.

This comes after the federal government channeled RM1.25 billion to Proton last year – which was almost immediately used up to settle outstanding payments to Proton’s vendors – and put mounting pressure on the company to secure a foreign partner that will inject the necessary funds and turn it around.

But even the search for an ideal suitor is on shaky ground, after it was speculated that PSA Group’s interest in the bid has been waning – a rumour ignited by the lack of a deal struck during French president Francois Hollande’s visit to Malaysia last month. Just a week prior, Geely president An Conghui told the South China Morning Post that the company had withdrawn its bid, the only competing one to PSA’s.

“For the French president to come all this way and nothing to be signed? That is very telling. If they [PSA and Proton] could see eye-to-eye at a high level, they could have at least signed a memorandum of understanding first. The other details can always be sorted out later,” said one industry executive.

The French conglomerate’s interest in Proton is part of a wider global strategy that it is pursuing under the leadership of Carlos Tavares, which has also resulted in the acquisition of Opel and Vauxhall. Tavares is looking to gain a firm foothold in the ASEAN market, but sources suggest that the group is becoming less interested in using Proton for this strategy, and may be looking at other avenues with fewer political pitfalls.

In a bid to put these concerns to rest, Proton’s parent company DRB-Hicom released a statement last month, with managing director Datuk Seri Syed Faisal Albar saying, “All parties that have submitted bids for Proton are still in the running and DRB-Hicom is still evaluating these bids.”

Syed Faisal added that the group needed more time to select a bidder – it previously stated that it would only announce a suitable partner at the end of the first half of the year, right around the deadline the government gave Proton to find one as part of the terms of the soft loan.

Although this statement was clearly contradictory to An’s comments of Geely pulling its bid, sources told The Edge that the Chinese carmaker has indeed returned to negotiations now that PSA’s prospects were less certain. It’s now rumoured that Geely’s sudden withdrawal in the FSP stakes a week before Hollande’s visit may have been a negotiation strategy after all.

Prior to all of this, Geely was the prime candidate, with certain parties hoping that its strategy for Proton would mirror its acquisition of Volvo from Ford in 2010. The Swedish premium brand was allowed to retain much of its operational independence and was able to minimise layoffs.

But Geely – and possibly PSA as well – may not value Proton so highly in terms of human capital, with both companies having access to superior technology and expertise; they likely view Proton only as a means to break into the broader ASEAN market.

Geely, for example, was reportedly looking at Proton’s Tanjung Malim plant as a base to build right-hand drive versions of its Lynk & Co 01 SUV for export to various RHD markets such as the UK and Australia. The company is also said to have plans to establish Proton as an entry-level brand within its overall structure, and that it is also intent in securing Lotus as part of the tie-up.

However, there’s an impending general election expected to be called as soon as the third quarter of this year, so any talk of job cuts among Proton’s 12,000-strong workforce will be met with strong political pushback – as will a consolidation of its vendor network, currently employing 50,000 people.

Then there’s the issue of how much management control the eventual partner will have over Proton. “It doesn’t matter who becomes the strategic partner of Proton. Both Geely and PSA will not come in if they are not given management control. Let’s just say, this is making the negotiations challenging,” said one source.

The Edge noted that going forward, the government has to consider the cost Proton will incur if it fails to secure a foreign strategic partner, with the company requesting considerably more funds on top of the ones it has already given, which turned out only to be a temporary lifeline. Continual losses will trigger the conversion of the soft loan into equity, effectively turning the government into a major shareholder in Proton.

Sales of Proton’s vehicles have yet to turn around despite the launch of four new models, the Perdana, Persona, Saga and Ertiga – all crammed into last year. The company only mustered sales of 13,306 units in the first two months of 2017, resulting in a 15.3% market share – in line with last year’s lacklustre sales.

With its last-gasp bid to prop up sales not having the effect it was supposed to, The Edge says that the next few months of negotiations with Geely and PSA will be closely watched, as they could make or break the national marque. No pressure, then.