Economy, Auto

Proton Offers to Sell Shares, Seeks Partners

Proton earlier this year sent partnership proposals to nearly 20 carmakers.Proton earlier this year sent partnership proposals to nearly 20 carmakers.

Malaysia’s Proton, locally known in the past 15 years for its deal with Zagros Khodro, is reportedly in talks with three carmakers, including PSA Group, to sell a significant stake in the firm.

The search by Malaysian conglomerate DRB-Hicom is the latest in a long series of efforts to find a partner to help revive Proton after years of profit hit by sub-par cars, poor after-sales service and tough competition.

The Malaysian government gave Proton 1.5 billion ringgit ($365 million) in financial aid in April, according to Reuters on September 23.

A Paris-based spokesman for PSA said, “Peugeot confirms it is responding to a request for proposals initiated by Proton and its shareholder.” The spokesman declined to comment on what PSA’s response would be, or the nature of the proposals made by Proton.

One person familiar with the matter said Proton sent partnership proposals to nearly 20 carmakers earlier this year. Japan’s Suzuki Motor Corp and French carmaker Renault SA are expected to respond to Proton’s proposal.

However, Suzuki and Renault officials declined to comment.

While Proton’s fortunes have waned since its 1990s heyday, the potential attraction for foreign partners would be access to its under-utilized manufacturing capacity: Proton has two manufacturing facilities in Malaysia that can make up to 400,000 cars annually, though it sold just 102,000 cars last year.

Foreign firms could look to make their cars in Proton’s facilities to target the economic growth hotspots of Southeast Asia, people familiar with the matter said.

These people declined to be identified because discussions about Proton’s proposal were confidential.

DRB-Hicom has not ruled out selling a majority stake in Proton, the people said, and may also consider selling British sports and racing car brand Lotus, owned by Proton.

Proton and DRB-Hicom did not immediately respond to requests for comment.

Founded in 1983 during former Malaysian premier Mahathir Mohamed’s industrialization push, Proton at its peak boasted a domestic market share of 74% in 1993, largely re-badging cars of foreign manufacturers to sell in the domestic market.

But after years of being plagued by quality and service issues, and with move to produce its own models failing to impress consumers, its market share has plummeted to about 15%, mostly due to increasing competition from Kia, Hyundai and Chinese brands.

DRB did not disclose Proton financial statements separately, but said it incurred a pre-tax loss of 821.27 million ringgit in fiscal 2015, largely due to losses from Proton.

While agreeing to support Proton in April, the government said its business model was not sustainable, and that it needed to find a strategic foreign partner.

Industry players say Proton also badly needs research and development support from a foreign partner if it is to build a viable future strategy.

“If Proton need to develop their own technology or design, they need more money,” said Titikorn Lertsirirungsun, ASEAN manager at consultancy LMC Automotive. “But this is a big challenge for Proton, given that its production volume is very low.”

Proton previously had an agreement with Zagros Khodro, a smaller Iranian car company who exclusively produced its Impian and other models inside Iran during the early 2000s.

The deal between the two sides collapsed when sanctions hit the country and Proton could no longer trade with the company.

Several attempts to restart operations between the two have been reported, but the Malaysian side is reportedly hesitant to restart operations for being owed money from their initial deal.

Zagros Khodro has since been partially bought out by car leasing company Azim Khodro who bought out a 70% share of that company by paying off its debts.