Govt okays 51% sale of Proton manufacturing

The government is believed to have finally decided on giving foreign parties 51% control in the manufacturing operations of Proton Holdings Bhd, with German carmaker Volkswagen AG being mentioned as a potential partner, a source said.

The source said negotiations have resumed with Volkswagen AG as of last month for it to come into the picture. Proton and the German carmaker ended talks early this year after they failed to agree on issues such as control of the company.

According to the source, the government is agreeable to a model that would be similar to the arrangement between second national carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and its principal Daihatsu Motor Co Ltd of Japan.

Under this arrangement, the domestic distribution arm will remain in Proton’s domain but the manufacturing arm will be headed by the foreign partner, which will bring in technical expertise and help expand Proton’s production for export.



It is learnt that the government reached its decision in mid-October during a closed-door meeting on the automotive industry chaired by Prime Minister Datuk Seri Abdullah Ahmad Badawi.

The meeting was attended by several ministers and representatives from the Economic Planning Unit and Bank Negara Malaysia.

Shortly after that, two senior officials from Volkswagen AG met up with Second Finance Minister Tan Sri Nor Mohamed Yakcop in Putrajaya to look into the matter. At the top of the agenda during the discussion were the equity structure, the vendor system and product development.

Volkswagen AG is expected to come back with a complete proposal regarding its participation in Proton, the source said.

The government’s latest stance has opened up more space for renegotiation with Volkswagen, or any other foreign carmakers, to become Proton’s partner.

“The latest development is critical to remove the current deadlock in the local automotive industry. Parts and component makers that supply to Proton have been suffering because of Proton’s declining production volume. You cannot solve the industry problems unless you solve Proton’s problem,” said a source.

It is learnt that Proton has halved its production volume to about 5,000 units a month for November and December given its huge stockpiles of unsold inventories that have to be cleared by year-end.

Lower production from Proton means fewer jobs for its parts and components suppliers.

“The slower the government acts on it, the more serious the problems could become. The vendors industry cannot wait further and they need a workable solution for Proton,” said the source.

He said the industry is getting impatient with the numerous memorandums of understanding (MOUs) that Proton has signed in recent months with French carmaker PSA Peugeot Citroen, Mitsubishi Motors Corp, Chery Automobile and others.

“Pending finalisation, the scope of the potential collaborations under the MOUs does not offer a complete solution to Proton’s problem in the longer term,” he added.

HLG Research, in a recent report on Proton, said: “The preferred, and in our opinion the choice option, is foreign equity participation with management control at Proton Holdings level. This enables the foreign party to steer and drive the necessary changes to improve Proton’s uncertain outlook.”

However, given the potential political backlash of giving Proton’s control in whole to a foreign partner, a Perodua model is a more sensible option for the government to be agreeable to.

With the government having made up its mind, it is now up to Khazanah Nasional Bhd to decide whether to sell its majority stake in Proton to private sector enterprises, such as Sime Darby Bhd or DRB-Hicom Bhd, to drive further negotiation with their respective foreign partners.

On Nov 8, Proton’s share price soared more than 11% or 54 sen to RM5.20 with 2.2 million shares done after talk resurfaced of a possible takeover of the national carmaker by the government or the entry of a new shareholder.

Meanwhile, speculation is rife that former Perodua managing director Tan Sri Abdul Rahman Omar will be appointed as Proton’s chairman to replace Datuk Mohd Azlan Hashim. When contacted, Abdul Rahman said he was unaware of such an appointment.