“Proton, as an OEM, like any other OEMs in the world, needs to develop its models. To develop one platform, one model, would easily cost up to RM1 billion. And if that model is only meant for Malaysia, the return on investment is not realised, (then) they cannot fully amortise because the model is not making money”
THE following are excerpts from an exclusive interview with Datuk Madani Sahari, chief executive officer of the Malaysia Automotive Institute, an agency under the International Trade and Industry Ministry.
Question: Would Proton lose its identity as the national carmaker after the tie-up with Zhejiang Geely Holding Group?
Answer: Compared with Perodua, which has a partnership with Daihatsu, it (Proton) has an overall Malaysian equity of 52 per cent. But, Perodua has never been judged as a non-Malaysian (carmaker).
The fact that DRB-Hicom still holds a majority of the shares (in Proton) should dispel any fear of losing that Malaysian identity.
When we talk about identity, no OEM (original equipment manufacturer) in the world works alone or by itself. Everybody will have one or a few partners.
Take, for example, Renault, Nissan and Mitsubishi. When people buy a Nissan, people still regard it as a Japanese car. When Mitsubishi joined Renault, it did not lose its Japanese identity.
When we talk about Renault, they do not have the intention to convert the Japanese and make them French. Their main aim is to maintain the Japanese identity to expand that wing under the umbrella of the Renault family.
Geely acquired Volvo, but Volvo is not considered a Chinese brand.
We bought Lotus from the UK (United Kingdom), do people say it’s a Malaysian brand?
Identities will not be lost just because there are equity swaps. What is the point of an equity swap if the identity is the same as the buyer? What’s the point of investing in a brand that has similar identities? I might as well penetrate into the market with my own identity.
Q: How will this deal benefit Proton?
A: An equity swap happens when a company wants to use the identity to expand the family. Whether it is a majority or minority stake, it is a business decision. DRB-Hicom still holds the decision-making power.
Geely will not dilute the Proton identity and, in fact, they want to use Proton’s identity to expand their family.
Proton, as an OEM, like any other OEMs in the world, needs to develop its models. To develop one platform, one model, would easily cost up to RM1 billion. And if that model is only meant for Malaysia, the return on investment is not realised, (then) they cannot fully amortise because the model is not making money.
With Geely coming in, this (business) model will be spread over a few models over Malaysia, China and Asean.
Imagine a model that is only sold in Malaysia, say 200,000 units, compared with the same model sold in China in a much higher volume. Imagine the economies of scale, compared with Proton doing this by itself.
Q: What other values can Geely add-on to Proton?
A: When we talk about going beyond Malaysian borders, they require meeting many standards. One is safety, the other is environmental standards.
Proton has been able to meet very high safety requirements, but to meet emission standards, it needs to look into huge development of the engine.
Proton has not met the Euro 5 emission standards and that prohibits Proton from exporting to countries that have Euro 5 emission standards.
Yes, we are not exporting to developed countries, but then again, even if you don’t develop a model of that standard, your competitors are all putting their cars with Euro 5 emission standards in the Asean market.
This environment factor is of concern among the community in Asean and all over the world now.
Would Proton be able to develop and improve their engines? Yes, but this is a costly exercise for Proton, and the evolution of environmental concerns will never stop.
Very soon, by 2020, the European Union is expected to raise that level to Euro 6 emission standards.
Many OEMs globally are adapting to new autonomous vehicle technology and many have made prototypes of self-driven vehicles.
Many of these OEMs are in Asean. Where is Proton in terms of that?
Q: How can we keep up?
A: To move forward in the next five years, OEMs need to develop their models towards this trend.
When it comes to autonomous vehicles, the styling and design of a vehicle is different. In the future, a car is not going to function with just a driver and passengers. A car will be regarded as a mobility unit, a platform that will allow people to do activities in cars with the advancement of connectivity.
All these are technology, but if we keep developing technology just to play catch up, when are we going to be in the forefront?
To meet the current standards, there are issues with money, and having a partnership will assist Proton in a big way within a group to move towards these directions.
Proton can move forward, and now, there is a solid way for it to acquire these technology that is available within the big family.
That is the only way Proton can stop playing the catch-up game, because to focus on selling cars only in Malaysia is unsustainable.
Q: Some critics regard Proton as already “sunken”. Is it too late to turn it around?
A: It is not too late. What it (Proton) needs is new models that can attract new buyers, not only in Malaysia, but also outside the country.
It needs to focus on selling its cars and provide good after-market services domestically as well as abroad.
Take, for example, the four new models that were launched recently. Their predecessors were introduced nearly 10 years ao.
You cannot survive with one model that long when most of the OEMs are renewing models once in at least five years.
Q: What does Perodua have that Proton does not?
A: Because of its partnership with Daihatsu, each time it develops a new model, it can amortise quicker and reinvest quicker.
The partnership also means that the chassis that Perodua uses is the same chassis that Daihatsu uses in Japan. The whole cost of developing the chassis can be divided in two.
Some people may say this is no longer “national”, but nowadays, OEMs are sharing platforms.
Furthermore, from a business standpoint, is it really that important to have your own chassis? Are customers really bothered about whether this is the chassis?
What is important is that a chassis is aligned to the specs of a model that you want to develop.
Many interior parts of a car that is not visible to a customer can be shared. That’s why when you are in a family of several car companies, you actually share the interior. It is all metal (reinforcements).
Sharing them would reduce the cost of the tooling of the mould. That is something customers do not see, but these reinforcements will get you to the safety level that you need.
Q: What are immediate initiatives by Geely?
A: If you look at the Geely-Volvo partnership, Volvo is still managed by the Swedish. (Geely) pumps in money, but the management of Volvo is still run by the same international people. They turned around Volvo in a matter of a few years.
Geely’s research and development facility in China is huge. It has about 16,000 people working under the research, styling, development and engineering flagship.
There is a commitment to make the Proton facility in Shah Alam as another one of the family’s research and development centres, especially for Asean and all right-hand-drive markets.
It still belongs to the JV (joint venture) company, of which DRB-Hicom has the majority stake in shares, but it is going to be recognised under the Proton-Geely-Volvo partnership and the R&D centre in Shah Alam is going to be Geely’s fifth research and development centre in the world.
Q: How will this improve Proton’s brand value?
A: It is difficult to improve the brand value of Proton, but with Geely and Volvo behind it, it can be done. Mindsets need to change.
Although Geely has a say in branding, it still has to work together as DRB-Hicom still holds the majority of shares.
Geely has also committed to protecting vendors and is going to increase the manpower of Proton, come August or so.
Also, Proton has quite a high number of bookings, but they can’t be converted into purchases.
Now, with Geely coming in as a partner, just like other OEM companies, this new JV may see the possibility of a credit financing company taking care of problems deriving from existing credit financing facilities. This will help immediate sales for current models while it focuses on developing new models
Source: NST Online