Proton's new boss arrives, now needs know-how

Proton's new boss arrives, now needs know-how

KUALA LUMPUR (Reuters): Malaysia's oil company Petronas steps
into the driving seat at Proton next week, taking a controlling
27 percent stake in the national car maker as it prepares for the
onslaught of foreign competition.

DRB-Hicom Bhd, which is selling its stake to Petroliam
Nasional Bhd (Petronas), said in a statement the long-talked
about deal would be completed on Dec. 4.

Proton, formally known as Perusahaan Otomobil Nasional Bhd,
needs the muscle of cash-rich Petronas.

But, it now seeks a foreign equity partner who knows the
business to help it shape up before protective tariffs tumble
down in 2005 against imports from Southeast Asian neighbours.

Petronas is paying DRB-Hicom one billion ringgit ($263
million), or seven ringgit a share, for 25.8 percent of Proton.
Petronas is taking an additional 1.4 percent of the car maker via
a share issue.

"Obviously, Petronas will be good for Proton. It may not be
able to provide the technical expertise or management know-how
but it has deep pockets. You need a lot of money to develop new
models," said Andrew Seah, senior analyst at Vickers Ballas.

Malaysian Prime Minister Mahathir Mohamad said last month the
government was considering the sale of up to 30 percent of Proton
to foreign companies and some U.S. automakers had shown interest.

Proton has already had talks this year on technology exchange
with several companies, including DaimlerChrysler AG, Ford Motor
Co and General Motors Corp

"What Proton now needs to do is make themselves more
competitive by making their own engines and transmission. Getting
a foreign equity partner would also be a step in the right
direction," said an analyst with a foreign brokerage.

Proton relies on engines from Japanese carmaker Mitsubishi --
which is a minority shareholder in Proton -- but is hoping in
early 2002 to launch its own engines, which are being jointly
developed with its UK subsidiary Lotus.

While the deal with Petronas is in the last lap, Proton is
taking its time inking the deal to buy 32.2 percent of car-
distributor Edaran Otomobil Nasional (EON) from DRB-Hicom --
which was part of the package proposed in 1998.

"They're haggling over price. Proton wants to buy at 11.0
ringgit but DRB-Hicom is said to want 14.0 ringgit," Reza
Mutaalib, analyst at Merrill Lynch Research, said.

Proton currently holds 65 percent of a highly protected
domestic market, but with production capacity at just 230,000
cars it just too small to compete with the big multi-nationals,
several of which are located in neighboring Thailand.

Proton only sees economies of scale kicking in if it can raise
output to 350,000 units.