Proton and Mitsubishi explore strategic tie-up

Posted on September 15, 2011 at 12:00 am
Proton has announced that it is now in serious discussion with Mitsubishi Motors Corporation (MMC) to establish a strategic collaboration that will further strengthen the competitiveness of both companies in the global marketplace. The announcement, which was also made by MMC in Tokyo, states the scope for discussion which is quite substantial, certainly more than the original discussions that were done in 2006.
 
(Above)EMAS concept car shows one of the future models which Proton is developing
(Below) Mitsubishi Global Small concept will be a production model in March 2012
 
The collaborative items being considered between the two parties cover a number of areas and activities, the main ones being:
 
Most recent major deal with MMC has been adapting the Lancer into a Proton model 

1. Joint production of engines in Malaysia;

 
2. Consignment production of MMC-brand vehicles at Proton facilities;
 
3. Sharing of major parts and components between MMC’s “Global Small”, which is to be launched next March starting in Thailand, and Proton’s upcoming “Global Small Car”; and
 
4. Provision of MMC’s future technologies such as electric, plug-in hybrid and hybrid vehicle technology
 
Though Proton has been separately talking to other companies, it has also remained in close contact with MMC which was its original technical partner when the national carmaker was established, and also continues to supply parts and systems for Proton models.

In December 2008, Proton also decided to adapt the Mitsubishi Lancer as an additional model in its range under a license agreement. This has benefited MMC by giving it extra .volume for its model

 
The announcement explains that the latest discussion between the companies aims to provide yet another win-win relationship where MMC will be able to expand its presence in the ASEAN market while Proton will be able to also expand its line-up and make effective use of its production facilities. A new strategic collaboration, supported by the growth of both companies since their first collaboration 26 years ago, would be a natural progression for both parties in taking their business relationship to a much more significant and impactful level in view of the growing competitiveness automotive landscape.
 
MMC is well ahead in the electric vehicle technology and its i-MIEV electric car is already on sale in certain countries.
With Toyota and Honda dominating the hybrid market, MMC has chosen to focus on EV technology
and this could be shared with Proton which is also increasing its EV activities
Click here to read an interview with MMC’s President about
the company’s aim to become the leader in electric vehicles
 
The production of selected Mitsubishi models at Proton facilities would certainly be beneficial to both parties. For MMC, it would mean that the models can be exported within ASEAN at duty-free rates under the provisions of the AFTA agreement. Of course, this would require a minimum of 40% ASEAN-sourced parts which should not be hard to achieve.
 
Proton’s Casting Plant in Selangor and (right) the CAMPRO engine developed in-house
Sharing of parts will allow for a larger order to suppliers, creating better economies of scale and lowering unit costs for both companies
However, engine production is a different matter and at this time, Proton’s engine plant is not making aluminium cylinder heads, let alone aluminium cylinder blocks (Perodua makes the aluminium cylinder heads for the CAMPRO engines). Virtually all of MMC’s engines today are all-aluminium units so if Proton were to be make engines for MMC, then a new plant or additional investment would be required. Of course, if it is a joint-venture project, then the investment cost can be shared.
 
Sharing of parts and components is crucial for Proton which is still trying to reach a level where economies of scale are significant enough to push its costs down and allow its products to be priced competitively without government support in the background. Joint orders for parts and systems can be larger, allowing both companies to enjoy lower unit costs.
 
The collaboration with MMC is the type which Proton has been determined to establish with other manufacturers – a tie-up which allows Proton to remain independent and not be managed by foreigners. The problem all the years has been that for most major carmakers, protection of intellectual property, especially technologies they have developed themselves, is vital. There was a case in China where a major global carmaker with a 50:50 partnership found its partner quietly selling off some technology to other parties.
 
“If we tie up with someone in a big way, then we would put in our own advanced manufacturing processes and specialized equipment in the plant to ensure that we can produce cars of the quality we expect. We would be uncomfortable if we were unable to ensure that such technology cannot be properly protected and kept secret if our partner also had other partners whose engineers can freely wander around into the plant as well since their products are also being made in the same place,” the senior executive of a major carmaker once told this writer.
 
As for the tie-up with Nissan which was announced earlier in the year, nothing further seems to have been heard after the signing of the MoU which specified a 3-month feasibility study (which expired in the middle of the year). There are rumours that both parties were unable to agree on cost issues so it looks like Proton will have to look for another model as the successor for the Perdana (a large Nissan model had been identified as a possibility earlier).
 
Proton’s Tg Malim plant has a lot of capacity (500,000 units/year had been planned) and utilisation is still low
so a deal with MMC to make some of its models would certainly be very helpful
Proton is aiming to be noticed globally and has strategies to achieve that goal

2015 has been hinted in government circles as the year when there is likely to be a major review of the automotive policies. Though Malaysia has fully conformed to its AFTA obligations of allowing duty-free importation of vehicles from other ASEAN countries, it still does not fully comply with its obligations as a WTO member. While it has, over the years, changed or removed requirements that are against TRIMS (Trade-Related Investment Measures) – the legal agreement WTO members sign which restricts measures that create unfair trade conditions for international companies – there remain issues such as the discriminatory issuance of import permits (APs) which make it unfair for foreign carmakers doing business here.

 
If 2015 is a year when greater liberalization occurs, then Proton has to be in a more competitive shape so it has to get costs down as quickly as possible. From what we know (and have seen), the product plans for most of the decade are sound and the models look pretty good.

The new global model to be launched next year will be a significant advancement for Proton and allow it to be more aggressive in export markets. Forging strong relationships with major players like MMC where technology costs can be shared would be crucial as there is no way the company can survive entirely on its own resources.

To know more about Proton Holdings Berhad, visit www.proton.com

To experience Proton models, visit www.proton-edar.com.my to locate a dealer’s showroom

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By Motor Trader Editorial Team

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