Less than a month since ailing Malaysian carmaker Proton Holdings Bhd (KLSE: PROTON, stock-code 5304) abruptly called off any negotiation with both Germany’s Volkswagen (FRA: VOW) and US-based General Motors Corp. (NYSE: GM, stock), the reason begun to appears although it’s still hard to determine if this could be the actual reason – NAZA Group was given preferential option to become the strategic partner for Proton Holdings Berhad.

While FinanceTwitter still thinks the initial talk ended due to its sensitivity with general election around the corner, Volkswagen should not waste any more time playing to the tune of the national carmaker. Just after Proton announced the call-off, the same party announced it didn’t close the door entirely and the talk could resume. And now you have this NAZA Group trying to play the white-knight role. The lame reason given for the initial call-off was that Proton registered a net profit of RM3.5 million on revenue of RM1.3 billion, the first quarterly profit after six continuous quarterly losses.

However it doesn’t takes a rocket scientist to undertand the profit was purely due to the model launched, Proton Persona with over 20,000 bookings, of which if you look closer it was a minor facelift from the older version of Gen-2. Furthermore the RM3.5 million net profits were too tiny to be celebrated, let alone declaring the carmaker was out of wood. Surely Proton’s management and Malaysian government aren’t stupid to acknowledge this (are they?). The government also repeatedly announced that Proton would not get a local partner (NAZA or DRB-Hicom) as both parties didn’t have distinct value-propositions that could push Proton to the next level of survival.

Miraculously you have Deputy Prime Minister Najib who said the government might still consider a partnership with local players despite the termination of talks with the foreign players. So which is which? Could the government or the Proton’s management make up their mind for the sake of long-term survival of the local champion (if only they can survive)? Now it’s pretty obvious what can NAZA or DRB-Hicom deliver to Proton. They’re purely distributor and to certain stage assembler. Both NAZA and DRB-Hicom do not have the expertise in designing (locally), let alone conducting R&D (reseach and development) to compete with global players. You still can buy Proton’s car today despite more than 10-years old of age.

If Proton decided to sleep with local partner, then it’s time to define the framework of its business model. Do what the local boys are good at – distribution. Don’t even try to do assembly unless they can improve on the quality. You might think how hard it could be to achieve top-quality in assembly-lines. Well, if they can do it, you won’t have the same decades-long complaints about problems (amazingly each Proton model has its own trademark of problems) till now.

However the magic bullet for Proton to prolong its life depends on its luck in China’s market. If Proton could just put more resources in ensuring high quality for its Europestar model with competitive pricing, it might just be able to float temporarily – until it falls into quarterly losses again (that would be another story for another time).

Other Articles That May Interest You …

• VW-Proton talks ended, sensitive issue during Election
• New PROTON Model with Old Design Launched
• Why Proton Needs Rebranding as Europestar for China?
• PROTON Saga Ending – VW as New Boss with 51%
• 5 Reasons Why You Shouldn’t Investing Proton Stocks

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December 18th, 2007 by financetwitter

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