China’s Geely buys 49.9% of Malaysian automaker Proton

From left: DRB-HICOM Berhad Group Director Corporate Strategy Planning and Business Development Khalid Abdol Rahman, DRB-HICOM Berhad Group Managing Director Syed Faisal Albar, Malaysia’s Minister of Finance II Johari Abdul Ghani, Zhejiang Geely Holding Group Executive Vice President and CFO Daniel Li (Li Donghui) and Zhejiang Geely Holding Group Vice President International Nathan Yu pose for pictures after a signing of agreement ceremony in Putrajaya, outside Kuala Lumpur on 24 May. Chinese auto giant Geely on 24 May announced it was taking a 49.9% stake in Malaysia’s troubled Proton as well as a 51% share in British sports car brand Lotus

• Geely will also buy 51% of Britain’s Lotus from Proton
• Proton owner DRB-HICOM says deal to be signed in July
• Proton will remain a national car – Second Finance Minister
• Deal gives Geely ASEAN beachhead, Proton a chance of recovery

KUALA LUMPUR/BEIJING (Reuters): Geely, the owner of Sweden’s Volvo Car Group, last week said it would buy 49.9% of struggling Malaysian carmaker Proton from conglomerate DRB-HICOM Bhd, marking the Chinese automaker’s first push into Southeast Asia.

Zhejiang Geely Holding Group Co. Ltd., parent of Hong Kong-based Geely Automobile Holdings Ltd, will also acquire 51% of Proton’s stake in British car maker Lotus, the companies said, without disclosing the value of the deals.

The investment comes on the back of deals worth billions of dollars signed recently between China and Malaysia, but stands out as formerly state-owned Proton is often regarded an emblem of post-independence industrialisation and economic growth.

“Proton will always remain a national car and a source of pride, as Proton will still have a majority holding of 50.1%,” Malaysia’s Second Finance Minister Johari Abdul Ghani said at a news conference to announce the deal.

“Our very own much-loved brand now has a real chance in making a comeback, a huge one I hope.”

Visitors look at Lotus cars in a Lotus showroom in Kiev, Ukraine, September 20, 2016 – REUTERS

People close to the matter told Reuters that Geely had hoped for a stake of at least 51%. But industry experts said Geely can still take a lead in defining Proton’s future having significantly strengthened its vehicle technologies since buying Volvo. “Geely has validated the model of using their Volvo technology platform to create good products. That should be the same for Proton,” said James Chao, Shanghai-based Asia-Pacific chief of consultancy IHS Markit Automotive.

Geely will take a leadership role in areas including production, manufacturing, sales and marketing, said DRB-HICOM, which will handle distribution.

DRB-HICOM said it expects to sign a deal in July.

Proton was founded in 1983 during an industrialisation push of former prime minister Mahathir Mohamed. Its domestic market share peaked at 74% a decade later as drivers took advantage of cheap loans as the government encouraged Malaysians to buy home-grown products. But lower-standard cars, limited after-sales service and competition from foreign automakers saw its domestic market share drop, to around 15% last year. “There is still national pride among us enthusiasts,” said Khafif Japri, president of Proton enthusiasts WiraOwnersClub. “What most of us here wants is for the brand to be better, stronger, and as good as other brands outside.”

Proton largely assembles cars designed by foreign automakers and re-badges them mainly for the local market, though it does have a small international presence - including North Korea, where its cars are commonly used as taxis. Its two factories can produce 400,000 cars but are not running at full capacity.

In April last year, it received 1.5 billion ringgit ($364.08 million) in government aid on condition it find a strategic foreign partner.

Interested automakers included France’s Renault SA and Peugeot SA as well as Japan’s Suzuki Motor Corp , Reuters previously reported.

For Chinese automakers, Proton’s base of Southeast Asia is increasingly regarded as a growth market as their technological know-how and vehicle quality improves.

Shanghai-based SAIC Motor Corp. Ltd. formed a joint venture in Thailand in 2012 and built a factory in Indonesia three years later. Dongfeng Motor Group Co Ltd has also been active in the region.

With the Proton deal, Geely said it can develop a beachhead in Southeast Asia. It could also gain access to right-hand-drive markets such as Malaysia, India, Australia and Britain.

“Malaysia and ASEAN countries are very good potential markets for us,” said Geely Chief Financial Officer and Vice President Daniel Donghui Li, referring to the Association of Southeast Asian Nations.

“Our target is to produce 3 million cars by 2020,” he said. “We will have potential of half a million cars in Malaysian and ASEAN markets by working with Proton.”

HSBC Holdings PLC advised Geely on the deal.