Proton Needs Volkswagen to Survive

In the news: Europe’s largest automaker and producer of Volkswagen relay said that its ongoing talks with Malaysia’s Proton Holdings Bhd are already at its advanced stage since it is really planning to seek a platform to expand its market in Southeast Asia.

According to Kevin Rose, Volkswagen’s head of international sales, “both parties clearly know what they would want from such an agreement.” He also said that the company is also working to meet the deadline set by the Malaysian government which is scheduled on March 31, 2007.

Volkswagen has already added capacity in China and will expand in India to boost sales of its Jetta and Passat models in two of the world’s fastest growing major economies. It should be noted that just last Proton has again reported its biggest quarterly loss in at least eight years and has been market share to overseas rivals including Toyota Motor Corp. Proton needs new design and technology in order to become competitive not only in Malaysia but in the world and it needs Volkswagen to provide it with the help that it needs to survive.

Ang Kok Heng, who manages 114 million stocks at Philip Capital Management in Kuala Lumpur, said “there are a lot of things Proton needs to learn in order to be competitive and having a partner will help it catch up with the bigger boys.”

Despite the losses that Proton has obtained it has managed to increase its shares by as much as 3.1 percent and closed up 5 sen or 0.8 percent at 6.55 ringgit in Kuala Lumpur, valuing the company at 3.6 billion ringgit or $1 billion USD. However in terms of stocks, Proton’s stocks have declined by 0.8 percent this year while Malaysian benchmark index has climbed 7.8 percent.

Proton is not the first Malaysian automaker that has seek for a foreign partner, the Shah Alam, Malaysia-based automaker has sought foreign alliance with Mitsubishi Motors Corp. unfortunately the partnership didn’t last long and ended in 2004. There are two other automakers that are discussing the possibilities of partnership with Proton, the PSA Peugeot Citroen and General Motors Corporations. However PSA Peugeot Citroen has ended talks with Proton last week while General Motors is said to be still having ongoing discussions. Unfortunately, no details were released regarding the talks between GM and Proton.

Volkswagen to Control Production

According to the Wolfsburg-based automaker controlling of local production is the key strategy to survive in emerging markets such as Malaysia and India. “For us a brand, it’s important that we can always say made by VW, or built by VW. Even in China, where for legal reasons we are a minority partner, we still have a great control over the production, assembly, design of our products, and that’s incredibly important for us,” explained Kevin Rose.

It is no secret that initial talks between Volkswagen and Proton have collapsed January last year after the two companies disagreed on issues pertaining to the control of the company. Fortunately, all issues have been settled resulting to the resuming of talks between the two automakers.

About Proton

Malaysia’s government owns 43 percent stake at Proton held by its investment unit, Khazanah Nasional Bhd. It was Former Prime Minister Mahathir Mohamad who set up Proton in the year 1983 and become the bedrock of the country’s manufacturing industry. Former Prime Minister Mohamad said last year that Proton will collapse without a foreign partner. It was in July 1985 that Proton launched its first model the Proton Saga which became the country’s most popular car for taxis.