ANOTHER ‘MALAY WHITE ELEPHANT’ FALLS: ‘CASH IS KING’ NAJIB ABANDONS PROTON AS HEAT FROM 1MDB-IPIC PAYMENT GROWS – LET LI SHUFU TEACH SYED MOKHTAR HOW TO DO BUSINESS WITHOUT HANDOUTS!

Chinese automaker Geely will be taking a 49.9% stake in Malaysia’s iconic, home-grown, but long-struggling carmaker Proton. Both Proton and Geely’s parent – DRB-Hicom and Zhejiang Geely Holding – are expected to sign the deal by the end of July. Behind the junk Proton is, of course, the crown jewel of the sale – British sports car marque “Lotus”.

In fact, China doesn’t want to waste RM770 million (RM170 million in cash and estimated RM600 million value in terms of injection of “Boyue” SUV platform into Proton) buying a junk Proton with “power window” problem thrown in. But the Government of Malaysia finally agreed to throw in a sweetener – 51% British automaker Lotus – for £100 million (US$130 million; RM555 million).

Proton Car Milo Tin - Preve Drive It To Believe It

Geely initially pulled out of acquiring Proton in March because DRB-Hicom, which is effectively controlled by UMNO crony Syed Mokhtar Al-Bukhary, disagreed to give up its controlling stake. But 49.9% is the closest the Chinese could get without sparking anger among the ethnic-Malay about losing their share, control, pride and dignity to ethnic-Chinese, let alone mainland Chinese.

However, at the same time, Najib administration was desperate of getting rid of Proton, the brainchild of his mentor-turned-enemy former Prime Minister Mahathir Mohamad. Proton, founded in 1983 by Mr. Mahathir, received a whopping RM1.5 billion in government aid last year alone. The national automaker has been asking billions of dollars of taxpayer’s money for its R&D (research & development).

First Proton Saga Launching - Mahathir

With the latest deal, Chinese billionaire Li Shufu’s Geely will own a majority stake 51% in Lotus Cars, while Etika Automotive (controlled by billionaire Syed Mokhtar) will hold the remaining 49% of the British carmaker. Both parties – Geely and Etika – will pay £100 million proportionately to DRB-Hicom. This means Geely pays only £51 million (US$66 million; RM282 million) for Lotus.

In Malaysia, DRB-Hicom and Geely will own 50.1% and 49.9% stake respectively in Proton. Proton will issue new shares to Geely for its 49.9% stake. Proton has two factories in Malaysia – one in Shah Alam and the other in Tanjung Malim – with a combined capacity to build 350,000 vehicles a year. But Proton has only been operating at 40% of its full capacity, thanks to its horrible sales.

Lotus Cars

The Tanjung Malim plant alone has annual production of 150,000 cars and designed to have a maximum capacity of one million units per year. In 2016, Proton sales dropped by 30% to 72,290 cars from 102,174 units in 2015, and even lost its market position to Honda. Perodua, a partnership with Daihatsu, is now the biggest carmaker in Malaysia.

Based on HoA (Head of Agreement) sighted, Proton will transfer some non-core assets back to DRB-Hicom prior to the deal, including Proton’s Shah Alam land (250 acres) and 40% stake in Tanjong Malim land development (Proton City) of 3,000 acres. Therefore, Proton will gradually relocate its production from Shah Alam plant to Tanjung Malim plant. So, what could be the issue arising from this?

Proton Car Logo Badge ThunderCat

Proton Tanjung Malim Plant

While the details of the acquisition are sketchy at this moment, Geely is expected to have a management say although it lacks the controlling stake. The Chinese automaker is expected to bring in its own specialists and managers on board to not only manage Proton but to turn it around for profitability. Due to under-capacity, staff retrenchment could be on the table.

From the perspective of business, the Chinese billionaire Li Shufu will show Malay billionaire Syed Mokhtar how to turn around Proton. To drive Proton to profitability, there’s certainly no room for national interest, race protection, bloated staff, inefficiency, cronyism, nepotism and whatnot. And this is precisely why Mahathir Mohamad is crying over the losses of his baby Proton to China.

Mahathir Mohamad - Sad Expression 

Upon setting up Proton, Mahathir made sure majority of the master parts suppliers went to his relatives, essentially controlling the supply-chain. All those blood-sucking leeches would be wiped out when the new sheriff transforms Proton based on Geely’s business model. The Chinese will design and control a new supply chain model for new products under Proton’s infrastructure and Lotus’ engineering.

When Geely bought Volvo from Ford in 2010, the Swedish carmaker was a loss-making one. For financial year 2016, Geely’s net profit more than doubled to 5.1 billion Yuan (US$741 million), its strongest growth since 2008, primarily thanks to Volvo’s product design and engineering. Now with the acquisition of Lotus, Geely could enter the sports-car segment.

Volvo V40

More importantly, China will gain footprint into Southeast Asia, an access to ship vehicles tax-free anywhere among the 10 members of the Association of Southeast Asian Nations – ASEAN – with a combined population of 623 million people. That would be the first step. Lotus Cars’ lightweight chassis technology will be the second step for Geely to gain access to market with stringent fuel-economy rules.

Over time, DRB-Hicom’s function could be diluted as merely sleeping partner, leaving all the heavy-lifting to Geely. The Chinese automaker’s leverage in calling the shot is definitely the huge China market, without which Proton would collapse, as proven when the Malaysian automaker booked about RM1-billion in net loss for the financial year ended March 31, 2016.

Geely - Lynk and Co 01 Car

There’s a possibility that Geely would use Tanjung Malim plant to build its right-hand drive version of Lynk & Co 01 – a 5-door crossover car designed and engineered by Volvo in Sweden – for the purpose of export to European market such as Britain and Australia. Therefore, there could also be a possibility that the present Proton brand could die a natural death over a long-term period.

But who cares if Proton Saga turns into Power Naga, as long as the consumers get the best value for their money? For as long as one can remember, Proton has been continuously protected by the government. Protected like endangered species, Proton sucks up a variety of government assistance including waived taxes, totalling up to RM13.9 billion since its inception in 1983.

Proton Sales Office

Proton’s domestic market share had peaked at 74% in 1993, and plunges like a rock to current 15% despite multiple restructuring plans in 2009 and 2012. Thanks to Najib-Mahathir rivalry, not to mention a drying national coffer thanks to Najib’s mismanagement, Proton is being given a “forced graduation”. Geely could be the bitter medicine that Proton badly needs all this while.

Still, paying RM282 million for ownership of Lotus engineering is fabulously cheap to Zhejiang Geely Holding. If Proton could thrive under the Chinese automaker, it would prove that it was extremely shameful for Mahathir, and ultra-Malays, crying for a continuous protectionism simply because they hadn’t a clue how to make Proton-Lotus works.

Li Shufu - Chairman of Zhejiang Geely Holding Co

Lotus Engineering

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