By Kavan Mukhtyar 
Partner & Head of the Automotive & Transportation Practice, Asia Pacific
Frost & Sullivan

Practical Approach: The Proton question has been a long pending issue for the Government. This decision will bring clarity on the future development direction of the Malaysian Automotive industry. The key question was how to retain Malaysian ownership of Proton yet getting it access to a strong Global strategic partner? The stake sale to DRB-HICOM is a practical approach as Proton will still remain Malaysian owned yet can get access to global partners.

Benefits to Proton: To be competitive, Proton needs economies of scale, high levels of capacity utilization and access to technology and markets. DRB-HICOM can leverage its global distribution and assembling alliances to achieve this. It could potentially do contract assembling for other global partners in Malaysia and increase capacity utilization of Proton’s assembling units.

This may open assembling opportunities not just in Malaysia but the regional markets. Proton may also potentially get access to other developing markets through the global partners.

Turning Private: With the Mandatory General Offer (MGO), DRB-HICOM is likely to take Proton private. A privately-owned entity that is independent of the Government and the Public will have much greater flexibility in making difficult decisions based on business rationale. We expect that in medium-term critical efficiency improvement and cost rationalization decisions would be taken to improve Proton’s competitiveness.

However, initially, the focus will be on quick gain opportunities to add new revenue streams to Proton’s portfolio like contract assembling. Turning Proton private will also give the DRB-HICOM group ability to streamline its own Automotive assets in the context of Proton being part of the group.

Long-term impact on the Malaysian Automotive Industry: With Proton turning private, we believe that in the medium term the market will be further liberalized. If managed correctly, Proton could unlock its full potential in the regional automotive market. Liberalization will also attract more interest in the Malaysian market from global automotive majors. This will enable Malaysia to attract further investments in the automotive sector. In the medium to longer term, vehicle prices in the mass market segment would go down. This will expand the market potential and eventually benefit the consumers.

A change of this magnitude will undoubtedly come with some pain. In the short term, there will be several changes in the Malaysian automotive industry with a push towards consolidation and rationalization across the value chain. In the global automotive marketplace, only the fittest survive and prosper. The future direction of Malaysian automotive industry remains positive yet certainly with intense competition.

Related story: Proton’s new owner to be DRB-HICOM

To read other news and articles on Proton during 2011, click here

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