Mahathir sees need for Proton partner
International Herald Tribune
OCTOBER 13, 2006
Soraya Permatasari and Haslinda Amin

KUALA LUMPUR Proton Holdings, Malaysia's biggest carmaker, will collapse unless it finds an international partner like Volkswagen, according to Mahathir Mohamad, the former prime minister who set up the company more than two decades ago.

"At the rate it is going, it's not going to last long," Mahathir said in an interview Tuesday. He became an adviser to the automaker after stepping down as prime minister in 2003. "Proton is reporting losses all the time, and they still have a lot of cars which they cannot sell."

Proton has been losing market share to overseas rivals including Toyota Motor, and needs to gain new technology and designs to compete. Volkswagen ended talks with the Malaysian carmaker in January because the two sides could not agree on issues including control of the company. Proton ended an alliance with Mitsubishi Motors in 2004.

"The government may need to offer a bigger stake or give up management control," said Raymond Tang, chief investment officer of CIMB-Principal Asset Management in Kuala Lumpur. Those are "the main points which they failed to agree on in previous talks," said Tang.

Proton's chairman, Mohammed Azlan Hashim, and its managing director, Zainal Abidin Syed Mohd Tahir, were not available for comment, the company's head of corporate communications, Faridah Idris, said by telephone Thursday.

Proton, founded by Mahathir in 1983 when he was prime minister, produces eight car designs under its brand and two types of Lotus sports cars. The exit of Mitsubishi Motors ended more than two decades of investment by the Japanese automaker.

Proton and the state-owned investment agency Khazanah Nasional, which owns 43 percent of the automaker, are studying whether a foreign investor could revive its fortunes, Second Finance Minister Nor Mohamed Yakcop said Sept. 5.

Selling a majority stake is not "absolutely necessary," Mahathir said in the interview. Volkswagen, based in Wolfsburg, Germany, did not want control of the company, he said.

"I still think Volkswagen is willing" to talk, he said. "Despite my initial intervention," Proton "seems to be not keen at all to have anything to do with Volkswagen."

Proton is also in talks to make cars with China's Jinhua Youngman Automobile Group and Chery Automobile, as well as India's Mahindra & Mahindra. Those companies may be allowed to buy a minority stake in the company in return for helping it expand in the world's two most populous nations, Deputy Prime Minister Najib Razak said June 19.

"We were working with Volkswagen and we had nearly completed" the negotiations, Mahathir said. "We would be manufacturing Volkswagen cars here and also using Volkswagen technology here. But the new management wants to work with China and India, thinking that they can enter these markets. I don't think they are going to get very far."

The Malaysian carmaker's competitiveness has been eroded by the government's new auto policy, introduced in March, which has made it cheaper to import cars into Malaysia, Mahathir said. The government cut import taxes to 5 percent from 15 percent.

"Proton cannot survive" without protection, he said. "When you go to Korea you don't see foreign cars. It's the same in Japan. They have ways and means of ensuring that foreign cars do not compete with their cars in their country."

The company's share of Malaysia's car market fell to 40 percent last year, from as much as two-thirds during the 1980s.

Malaysia, aiming to become a regional hub for car manufacturers like Toyota and Isuzu Motors, offers incentives and tax breaks for overseas carmakers to assemble their products in the country.

Proton's loss widened to 58.6 million ringgit, or $16 million, in the first quarter ended June 30, from 12.4 million ringgit a year earlier, as a lack of new models damped sales, the company said in August. Revenue fell 31 percent to 1.42 billion ringgit.

"Proton needs a strong partner," said CIMB-Principal Asset's Tang. "The best partners could be something like Honda or Toyota. Those companies are very good at what they do but they may want to be able to institute changes."

Proton last month signed an initial agreement with Peugeot Citroën to study the possibility of developing new models together. The agreement is Proton's third this year with an overseas carmaker for possible joint product development.

"If you merely make an arrangement in order to get the platforms from some company, that is not a transfer of technology," Mahathir said, referring to the Peugeot accord. If "that's what they intend to do now, that's not going to do any good for Proton."

Proton is also developing a new model using Mitsubishi components and technology, which it plans to start selling early next year. The Malaysian carmaker, which last year posted its lowest profit since 1991, aims to introduce six models, including its first multipurpose vehicle, this year through 2008 to reverse slumping sales.

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