In the news: Volkswagen, Europe’s largest automaker and producer of VW’s popular brand of clutch parts, including several VW clutch plates, has released some statements claiming that its partnership with Proton Holdings Bhd of Malaysia is already at its “fairly advanced” stage. The automaker also added that the ongoing talks between them and Proton are part of the company’s plan to expand its market in Southeast Asia. According to Kevin Rose, head of international sales for Volkswagen in an interview, “both sides clearly know what they would want from such an agreement.” He also said that the company will try to “work within” the deadline set by the Malaysian government, which ends on March 31, 2007.
Still in connection with its sales expansion program, Volkswagen has also added production plants in two of the world’s fastest growing economies: India and China. VW’s main objective is to boost sales of its Passat and Jetta models in these two countries. It should be noted that Proton returned to report its biggest quarterly loss in eight years last month and has been steadily losing market share to its other overseas rivals, including Toyota Motor Corporation. You also need new technologies and designs to become competitive.
Ang Kok Heng, who manages around $114 million at Philip Capital Management in Kuala Lumpur, “There are a lot of things Proton needs to learn to be competitive and having a partner will help you catch up with the bigger boys.”
Despite the losses Proton makes, it was still able to take a rise in the shares which rose 1.5 percent to RM6.6 and traded at RM6.55 at 11:54 a.m. in Kuala Lumpur, valuing the company at 3.6 billion ringgit or $1 billion. The stock is down 0.8 percent on this, while the benchmark Malaysian stock index is up 7.4 percent.
Proton isn’t actually the first Malaysian automaker to partner with a foreign automaker, Shah Alam, which is a Malaysian based automaker, partnered with Mitsubishi, sadly the joint venture only lasted until 2004 .
Another reported foreign automaker, PSA Peugeot Citroen, which has been in talks with Proton, announced last week that it is no longer interested in continuing talks with Proton. On the other hand, the world’s largest automaker, General Motors, said it is still discussing the possibility of a partnership with Proton.
Volkswagen in production control
The Wolfsburg-based carmaker said it has been reining in its local production because it believes it is a vital strategy for success in emerging markets such as Malaysia, China and India. According to Rose in a recent interview in Singapore, “For us as 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’re a minority partner, we still have a lot of control over production.” , assembly and design of our products, and that’s incredibly important to us.”
Talks between Volkswagen and Proton collapsed in January last year after some disagreement over issues, particularly in terms of who will control the company. It’s no secret that the Malaysian government controls Proton through a 43 percent stake held by its investment unit Khazanah Nasional Bhd. Proton was founded by former Prime Minister Mahathir Mohamad, who also emphasized the company’s need for a foreign partner to survive.
Volkswagen: Proton’s Chosen One
Chong Lee Len, an analyst at Hwang-DBS Vickers Research Sdn. in Kuala Lumpur and calling Proton’s shares “fully valued,” said Volkswagen’s comments are indicative of the automaker seeking 51 percent of Proton’s total manufacturing business. He also said Volkswagen is “definitely the one for the investment community to get involved with.” He added that it would cost Volkswagen about RM900 million to control Proton’s manufacturing unit.
Another analyst, this time from CIMB Investment Bank, said: “Volkswagen will use Proton as a manufacturing hub for the region. The deal will help Volkswagen expand its sales in Malaysia, the largest passenger car market in Southeast Asia. It is positive news for Proton”. But of course, unless Volkswagen and Proton confirm a partnership, all we’ll have is mere speculation.