Foreign control may strengthen Proton<\/p>\n
Dow Jones, Kuala Lumpur<\/p>\n
The acquisition of Proton Holdings Bhd. by a foreign carmaker is
\nlikely to expedite quality improvements and increase sales, but
\ncould spell the end of Malaysia's homegrown autos.<\/p>\n
\"There seems to be some attempt to buy up the company,\"
\nMahathir Mohamad, former prime minister and Proton adviser said
\non Tuesday. \"Our fear is of course if they buy 100 percent they
\nmight close the production of our national car and just assemble
\ntheir car.\"<\/p>\n
Mahathir said the government's investment arm Khazanah
\nNasional Bhd., which holds a controlling 42.7 percent stake in
\nthe 20-year-old company, has until the year-end to reduce its
\nstake to 33 percent or less under a ruling by stock-market
\nregulators.<\/p>\n
Analysts believe that with an established foreign carmaker in
\nthe driver's seat, Proton could regain its shrinking domestic
\nmarket share even as Japanese and South Korean rivals
\naggressively competing on price and quality.<\/p>\n
Even the likelihood Proton will have to give up its own engine
\nand car design manufacturing efforts hasn't damped analysts'
\noptimism for the entry of a major foreign investor.<\/p>\n
\"Giving up a controlling stake to a major auto player will
\nfast-track Proton's improvement process and Proton should go the
\nway Perodua has gone and give up national pride,\" said an auto
\nanalyst with a mid-sized brokerage.<\/p>\n
Perusahaan Otomobil Nasional Bhd. (Perodua), which makes
\nmostly compact cars, benefits directly from the technology and
\nsupport of parent Daihatsu Motor Co. of Japan, analysts say.<\/p>\n
There isn't a shortage of buyers for Proton, Mahathir noted.<\/p>\n
\"If you want to you can sell more than 50 percent to
\nVolkswagen. They are quite willing to buy even 100 percent. There
\nare many other companies which will gladly buy 100 percent of
\nProton,\" the former prime minister said.<\/p>\n
Proton is currently in talks with Volkswagen AG of Germany for
\na technical tie-up or collaboration to make cars in Malaysia for
\nexport.<\/p>\n
However, most analysts believe an equity partnership between
\nVolkswagen and Proton is necessary for the transfer of real
\nbenefits to Proton, such as technology development.<\/p>\n
The quality of Proton cars has often lagged that of its
\nJapanese and South Korean counterparts, but Proton recently
\nappointed an independent German audit firm to improve its cars.<\/p>\n
Once holding around 60 percent of the domestic market, Proton,
\nSoutheast Asia's biggest automaker, has seen its market share
\ndrop to 44 percent in 2004 from 48 percent in 2003 with the
\nopening of the Malaysian market under a regional free-trade
\nagreement that reduced tariffs that kept the prices of foreign
\ncars artificially high.<\/p>\n
Proton's share price has lagged the broader market since the
\nbeginning of this year, reflecting investors' concerns about the
\ncompany's ability to compete with foreign rivals, analysts said.<\/p>\n
Since the start of this year, Proton shares have fallen 18.8
\npercent to 7.30 ringgit at 07:00 GMT, while the benchmark Kuala
\nLumpur Composite Index has dipped only 0.8 percent to 900.42
\npoints in the same period.<\/p>\n
\"The underperformance of the share price is reflective of the
\nmarket's negative sentiment on Proton,\" Mayban Securities said in
\na recent research report.<\/p>\n
Although Proton shares are now considered cheap, many analysts
\nhave a hold recommendation on Proton.<\/p>\n
One of Proton's key attractions as an acquisition target is
\nits cash assets of more than 2 billion ringgit. Along with non-
\ncash assets, the company is valued at around 8 billion ringgit.<\/p>\n
Proton's Chief Executive Mahaleel Ariff, ruffled feathers last
\nweek by reportedly criticizing in a newspaper interview the
\ngovernment's auto policy as forcing Proton into a corner.<\/p>\n
Several local dailies reported that Mahaleel, a Mahathir
\nloyalist, would be sacked soon.<\/p>\n
But Mahathir said Mahaleel remains at the helm of the company
\nand \"as far as I know he has not been asked to leave.\"<\/p>\n
\"I think Mahaleel was duty bound to protect the name of
\nProton. He has to explain things because if he doesn't then the
\nsale of Proton will go down,\" Mahathir said.<\/p>\n
Proton will make about 190,000 cars this year. Malaysia is the
\nregion's biggest car market, buying about 487,605 new vehicles
\nlast year.<\/p>",
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