Government can own 80% of Proton through debts

KUALA LUMPUR: If the government chooses to convert debts into shares, it will again end up owning nearly 80 per cent of Proton, the national carmaker whose second spot since 2006 was taken this year by Honda, said the Bangkok Post in a report.

“That is very shocking for everybody,” Kyodo News quoted veteran auto reporter Chips Yap as saying on Honda’s feat.

Honda sold 24,741 units by April this year while Proton had 23,704 units. Perodua was ahead with 62,078 compact cars.

The government has pumped RM14 billion into Proton since 1983 in the form of grants, and various forms of assistance and taxes foregone. In April this year, it gave Proton a RM1.5 billion loan to help pay its vendors. This month, RM1.25 billion of that loan was used to buy convertible shares in DRB-Hicom Bhd which owns Proton.

“Proton flourished, yes, but only due to a very high level of government help. Our car industry grew under the umbrella of protectionism, with quotas on engine sizes and Malaysians paying high import duties on foreign cars,” said Prime Minister Najib Abdul Razak. “At times there was a sense of hubris, that Proton could do anything because the government would always back it.”

“Two factories were built, capable of producing 400,000 units a year. But last year Proton sold only 102,000 cars.”

Najib added that he was pleased to say, there have been significant changes at the top levels of Proton. “Mahathir’s era of political interference has come to an end.”

Former Prime Minister Mahathir Mohamad, who started Proton in 1983, has been accused of interfering in the company’s management when he was head of government and later as the company advisor and subsequently chairman. Mahathir resigned before the government pumped in the RM1.5 billion loan.

Yap said that Mahathir was heavily involved in the company from devising strategy to management, and design, delaying decision-making. The company also lacks research and development expertise besides having an insignificant export market.

Proton was the top carmaker until 2006 when it was beaten by Perodua, the second national carmaker in which Daihatsu has a stake.

The government has set up a committee to help Proton relocate its plant from Shah Alam to Tanjung Malim, restructure and bring in a foreign strategic partner. After having failed with Volkswagen, there’s pessimism that the company will be able to woo the French PSA Group, as reported. The French company owns the Peugeot, Citroen and Renault makes.

“The managers at Proton are generally not in favour of the PSA Group’s bid,” said veteran auto journalist Yamin Vong in a report published by Bernama, the national news agency, early this month. “This is to be expected whenever a takeover bid looms. Also, the perception is that the Proton culture is one that rejects changes is very credible.”

The companies that will really want Proton as a partner for Malaysia and the Asean markets are brands that do not have an Asean presence and desire to have a significant share in the region, added Vong.

Proton started with Mitsubishi to roll out its first car in 1985.

Hong Leong Investment Bank, in a research note on June 7, said that Proton was a drag on DRB-Hicom which has seen its RM300.2 million profits a year ago evaporate. Instead, the company reported a net loss of RM991.9 million for the year ended March 31. “The new launches should cushion the cash-flow requirements and survivability in the short to medium terms,” said the bank. “However, Proton needs a strong partner to lead it into the international level playing field with improved products and technologies.”

Proton has 12,000 workers while its 350 vendors employ another 50,000 workers.