Geely buys into Malaysia's Proton

Updated 2017-05-25 09:30:41 Global Times

Will ease entry into other SE Asian markets: experts

Chinese automaker Zhejiang Geely Holding Group Co said Wednesday that it will buy a 49.9 percent stake in Malaysia-based carmaker Proton from DRB-Hicom, and it will also take a 51 percent stake in Proton's luxury car brand, UK-based Lotus Group.

The deal was announced in a statement posted on Geely's website.

Beating out potential rivals such as PSA Group, Renault SA and Japan's Suzuki Motor Corp, Geely will become Proton's exclusive foreign strategic partner.

Negotiations are ongoing and a final agreement is likely to be signed by mid-July. Geely is committed to supporting the transformation of Proton and Lotus with the expertise and resources within the wider Geely Group, and both parties aim to build Proton into the most competitive brand in Malaysia and a leading brand in Southeast Asia, according to the statement.

Geely Vice President and Chief Financial Officer Li Donghui said that "with Proton and Lotus joining Geely, we'll strengthen our global footprint and develop a beachhead in Southeast Asia."

"Geely is full of confidence for the future of Proton. We will fully respect the brand's history and culture to restore Proton to its former glory with the support of Geely's innovative technology and management resources … we also aim to unleash the full potential of Lotus and take its development to the next level by expanding and accelerating the roll-out of new products and technologies," Li noted.

"The takeover of Proton and Lotus will help Geely enhance its brand value and improve the automaker's product structure, but it will be less helpful in terms of technology," Zhang Zhiyong, the founder of Wenfeng Automobile, told the Global Times on Wednesday.

"Geely has accumulated much management and operation experience in terms of having a multinational brand after it acquired Volvo [in 2010] ... Buying Proton will give the Chinese car company a fast lane into the Malaysian market, where protectionism is quite strong against foreign companies and local customers have strong loyalty to local brands," said Zeng Zhiling, an analyst at Shanghai-based consultancy LMC Automotives.

Proton, established in 1983 by former Malaysian premier Mahathir Mohamad, received 1.5 billion ringgit (8.2 million) in government aid in 2016 on the condition that it pursue a turnaround plan and seek a foreign partner, according to a Reuters report Wednesday.

Zeng told the Global Times on Wednesday that "after Geely gains a firm foothold in Malaysia through the tie with Proton, the Chinese company can easily enter markets in the Association of Southeast Asian Nations."

But there are risks in the deal because Geely will not have total ownership of either Proton or Lotus, noted Zeng.

Experts said that the takeover of Lotus will probably inject new life into the brand, which has performed poorly in recent years.

Lotus' revenue for the 2016 financial year ended on March 31 slid 17 percent to 79 million pounds (2.5 million) after safety regulation changes forced Lotus to suspend sales of its Evora high-end sports car in the US, according to Automotive News Europe.

In recent years, Geely expanded swiftly around the world. The leading China-based private car group acquired Sweden-based Volvo Cars from Ford Motor Co in 2010 and acquired the London Taxi Co in 2013.

Geely performed well in 2016, with domestic sales up 50.2 percent year-on-year to 765,851 vehicles, according to Geely's earnings report released in March. Revenue reached 53.7 billion yuan (.8 billion), up 78.3 percent.

Europe and the US have been targeted by Geely for future expansion, said Zhang of Wenfeng Automobile.

"These are mature markets, and if Geely can enter them successfully it will boost its global brand recognition," he noted. There are fewer risks in the European and US markets where the regulatory environments provide security for all participants, including foreign ones.

But Zeng warned that it will take time for Geely to successfully expand into Europe and the U.S., which are both fiercely competitive and saturated.

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