Is Proton Still In Need Of A Foreign Partner?

Proton’s new global small car coming.

Shares of DRB-Hicom Holdings, the parent of Proton, were down by as much as 7 cents at the start of the week as the national carmaker still manages to bleed red ink while its market share shrinks further. Financial analysts have cut their forecast earnings as they do not believe that the beleaguered Malaysian car manufacturer will be able to return to profitability in the next financial year, which starts April 2014.

The news came as a disappointment to Proton and DRB managements who had been encouraged by the results from the second quarter, when there had been a jump in sales. Unfortunately, the earlier jump, which was very much powered by the Saga SV, was short-lived and an estimated operating loss of MYR105 million in the third quarter is expected.

Proton and the Malaysian car industry are trying to avoid going the same way as the Australian car industry (see Toyota Says Sayonara To Australia), but many still believe that the Malaysian market is too small to go at it alone and a foreign strategic partnership is needed, such as the one Perodua, the other Malaysian manufacturer, has with Daihatsu. Proton and DRB have been linked with Volkswagen many times in the past, and they do have an assembly line putting together Jetta, Polo and Passat cars for VW. Thus, once again, the link is being made although no announcements have been.

Analysts are quick to remind us that the Malaysian National Automotive Policy 2014 has taken away import tariffs for hybrid cars that are imported in kit form and assembled in Malaysia; these are locally known as Complete Knock Down or CKD vehicles. It is this very policy that many analysts are saying will harm the ability of Proton to recover as foreign-designed cars will be able to compete price-wise with Proton’s offerings in the future.

Currently, only Honda is doing this in large scale and of course BMW does not believe that there is the economy-of-scale to achieve this economically in the country. So, it is probably a little premature to say that the policy or the hybrids will dent the future growth of Proton. DRB believes that the car company needs to be manufacturing about 350 000 vehicles per year by 2018 to be able to compete and must also be taken seriously in other territories to enable a meaningful level of exports.

Company insiders are still confident that the turnaround is on-going and still on track, pointing to the Perdana replacement model, but more importantly the launch of Proton’s global small car in the first quarter of financial year 2015. The car, which is from a similar mould to that of the Savvy, has already broken cover and featured in spy shots, and is believed to be a vehicle that will finally give Proton traction, especially in markets like Australia, where the company has enjoyed some success (Read also Good News For Proton!). We all hope so.


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