Proton-Geely deal may boost production plans but raises doubts over saleability

Proton, under the conglomerate DRB-Hicom will see Chinese automaker Zhejiang Geely Holding Group acquiring a 49.9% stake in the company.

The Geely Automobile Holdings logo is pictured at the Auto China 2016 auto show in Beijing. Reuters

Malaysia's Member of Parliament, Datuk Ahmad Fauzi Zahari, today said the national carmaker Proton's partnership with China's Geely would free its shackles from government subsidies, which were a considerable expense to taxpayers.

Proton, under the conglomerate DRB-Hicom will see Chinese automaker Zhejiang Geely Holding Group acquiring a 49.9% stake in the company. The deal will also see Geely, which is the parent company of Hong-Kong based Geely Automobile Holdings Ltd and Swedish Volvo Car Group acquiring the 51% stake of Proton's unit, Lotus.

Bernama quoted Ahmad Fauzi saying that such subsidies, which had accumulatively run into billions since the formation of Proton over the last 30 years, left the company stumped and an international partnership with a player like Geely had set growth prospects in Protons' path.

He said Proton is now able to increase its production to 500,000 vehicles, a five-fold production target in the next three years with the possibility of an Asean entry and also the China market. "Asean comprises of a 600 million population and China's annual car sales is 28 million whereby if Geely can secure one 1% of the China market, this brings an extra 280,000 cars for Proton to produce," Ahmad Fauzi said.

He said the sky was the limit following the Geely partnership with Proton as the current annual production of 74,000 was only 20% of the Tanjung Malim plant.The MP lauded Geely's success since taking over Swedish automaker Volvo in 2010, boosting its production to over 200,000 more cars than Volvo had previously. The MP also said he was personally excited about Proton' future because it would mean saving some 60,000 direct and indirect jobs plus some 200,000 other vendors, distributors, and suppliers.

Malaysian political and economic analyst Hoo Ke Ping, however, raises doubts over the expected success that Geely will draw in. Hoo said Proton must hit the Malaysian market hard first before venturing abroad to the Southeast Asian market.

"Big brands like Toyota, Ford, Honda have chosen Thailand as their production destination and last year, in Bangkok alone, over 1 million vehicles have been produced and exported," Hoo told International Business Times.

Hoo said with foreign brands already dominating the region, Proton needs to put up a good fight in terms of product variety and quality. He said locally, Proton would have to compete with UMW Holding Bhd's local carmaker, Perodua, which over the years have gained a good reputation from consumers.

"To gain traction in the local market, Proton must first expand 5% in their sales volume to which they will struggle through in the current market," he said.