27-07-2007: Govt sees Proton turnaround soon

KUALA LUMPUR: The government expects to turn around its loss-making national car maker, Proton Holdings Bhd, soon and hopes to see improvement within a year, Second Finance Minister Tan Sri Nor Mohamed Yakcop said on July 27.

State investment arm Khazanah Nasional Bhd, which owns 43% of Proton, is in talks with German carmaker Volkswagen and US auto giant General Motors to sell some of its stake in the company.

"For Proton we face a few challenges," Nor Mohamed told reporters in the Malaysian capital. "We are confident, God willing, of turning around Proton, but we want to do a good job of it."

Proton has been struggling with a steadily declining market share at home due to fierce competition, and has been unable to make up the shortfall through exports.

Volkswagen is seen as the frontrunner to partner Proton and has held several rounds of talks with the Malaysian government. A third round could be in the offing but talks with US carmaker General Motors are also under way, the government said last month.

Last week the Edge financial weekly said the two companies were nearing a partnership deal in which Proton would control its domestic distribution network while Volkswagen would handle international distribution.

Proton's shares were down 2.6% at RM5.65 at the midday trading break. - Reuters

23-07-2007: Car-scrapping policy approved

The government has approved a proposal for the voluntary scrapping of cars 15 years and older to boost the domestic automotive market, particularly Proton, industry sources said.

It is understood that Proton Holdings Bhd has been entrusted with the task of coming up with the details of the policy.

It has been decided that those who voluntarily scrap their cars will be offered a subsidy to buy a new Proton car.

The subsidy will be on a scale with a maximum of RM5,000, said a source, depending on a number of parameters such as the make, quality and the market price of the car being scrapped.

"The subsidy amount will be sufficient to cover at least the downpayment cost of a new Proton car," an industry player said.

It is believed that the scope of the policy may well be extended in future to encompass cars that are 10 years old.

"It is also possible that the voluntary element for cars of a certain age may be removed so that there could be a compulsory end-of-life policy in the future," said one industry player.

One dealer explained that Proton was thus far the only car that actually fitted the bill because of its high local content.

"If other marques want to be considered for the scrapping policy then they could do so by increasing their local content as well," he said.

With the policy in place, the expectation is that sales of Proton cars will be given a boost as people opt to swap their old cars for a new Proton made more affordable with the subsidy.

For the used car market, the fact that old cars are being taken off the roads will offer some respite.

It is believed that the scrapping policy may be announced in time for the next national budget on Sept 7.

The car-scrapping policy was proposed by second-hand car dealers and Proton itself in an effort "to get old cars off the roads" and thus boost industry sales.

Previously, old cars that are scrapped are only worth the price of the scrap metal.

Malaysia has never had an end-of-life policy unlike several developed countries.

It has always been perceived that such a move would be unpopular with the masses as the cost of cars in Malaysia has always been relatively exorbitant.

However, with auto industry sales dipping, especially those of used cars, players have lobbied the government to implement some sort of end-of-life policy.

"This is a compromise arrangement. It's voluntary and at the same time attractive enough to make people stop and consider their options at least," commented one dealer.

The local auto market was badly hit when new car prices fell after the announcement of the national automotive policy in March 2006. As new car prices fell, so did the prices of used cars which meant that many were left with car loan amounts that were higher than the residual values of their cars.

This caused a slowdown in the market which industry experts then estimated would take 18-24 months to clear up.

However, auto players came up with creative promotions in order to boost their sales which included dropping prices further while offering extended loan periods of up to nine years.

The result has been the prolonging of the pain after the NAP. Experts now expect that it could take the industry up to three years to find its equilibrium after the NAP.

"The car-scrapping policy will help to a limited extent, though," said a dealer. "It's a start in the right direction."

Proton launches i.CARE initiative

SHAH ALAM: Proton Holdings Berhad today launched Proton i.CARE, a new initiative that the company said underscores its commitment to improve every quality aspect of its business.
With its “You Can Count On Us” message, Proton i.CARE will be a key driver to transform and project Proton as a company that is committed to improvement and growth in quality, according to the company.

Managing Director Datuk Syed Zainal Abidin Syed Mohamed Tahir said: “Proton i.CARE is not just a campaign or a programme. It is an all-encompassing culture and way of life for our technicians, service centres and every Proton employee.
“All customer service offerings will now fall under the Proton i.CARE umbrella. From hotline to 24-hour breakdown services to after-sales service centres, Proton i.CARE will be the single point of contact, serving as the companion for customers," he said.
As part of the initiative, Proton will set up 34 mobile service teams consisting of 108 technicians to offer free vehicle inspection and quick service to its customers.
These mobile teams will meet, greet and attend to customers at shopping malls, industrial parks, business centres, highway rest areas and Petronas petrol stations, according to Proton.
Customers will be able to enjoy this service starting from 21 July 2007.

16-07-2007: Foreign partner's entry into Proton being paved

The government's recent move to remove restrictions on the number of imported cars from Asean countries is being seen as paving the way for the entry of a foreign partner into Proton Holdings Bhd.
The lifting of the restrictions, while in line with the country's commitment to the Common Effective Preferential Tariff (CEPT) under the Asean Free Trade Agreement (Afta), has raised eyebrows.
The recent development in the domestic auto industry, which includes the easing of restrictions on the imports of used cars by the Malay Vehicles Importers and Traders Association (Pekema), has piqued the interest of some analysts.
An analyst with a local research house said the recent news flow was strangely coinciding with the ongoing negotiations between Proton Holdings Bhd and German carmaker Volkswagen AG (VW).
She said the Ministry of International Trade and Industry (Miti) seemed to be back-pedalling with its latest move.
The analyst said the national automotive policy implemented last year was originally aimed at phasing out approved permits (AP) for used cars by 2010 and also protect national carmaker Proton's interests.
"Why are these AP and quota removal issues cropping up now? It is coinciding with the ongoing negotiations between Proton and German carmaker Volkswagen AG.
"Could it be a case that VW is cornering the policy makers into making Malaysia its platform to export its cars to Asean countries as part of the deal to be Proton's strategic partner?"
"VW might be twisting Khazanah Nasional Bhd's arm and making sure the deal is linked to it being able to use the Proton manufacturing facility to export both the national car as well as VW marques into the regional market," the analyst told The Edge Financial Daily.
The analyst said the Road Transport Department had registered 52,923 imported cars last year and another 21,592 cars up to April this year.
"Miti's latest move is excellent news for distributors like Honda, Toyota, Nissan, General Motors and potentially, VW, who have plans to be regional players as they can now export their own models that are not made in other Asean countries from a base in Malaysia," she said.
Last Thursday, Minister of International Trade and Industry Datuk Seri Rafidah Aziz said Malaysia had fully complied with the CEPT with the latest move to allow unlimited import of cars from Asean countries.
Prior to this, the government only allowed up to 10% of the vehicles in Malaysia to be imported under an AP system.
However, the Minister did not say whether the lifting of the restriction on imports covered both new and used cars, although automotive analysts clarified that the lifting of the quota on Asean cars applied to completely built-up units.
Rafidah was reported as saying that Thailand, a major car manufacturing country in Asean, had reciprocated the move and eased its restrictions on the import of cars from Malaysia.
The Malaysian Automotive Association appears to view the latest development positively.
"We are importing a lot of cars from Asean now. This will enable more Malaysian cars to be exported to Asean countries after this," its president Datuk Aishah Ahmad told The Edge Financial Daily in a telephone interview.
However, she did not provide a breakdown of the number of cars imported from other Asean countries into Malaysia.
Affin Securities' Jason Yap said Proton, which previously did not export its cars to Thailand, could now do so as the country had lowered its restrictions.
"This augurs well for Proton to possibly start exporting its cars to Thailand," he said.
He also said the earlier removal of restrictions on open APs would have minimal impact on Proton and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) as their cars were targeted at the low to mid-end markets.
"Additionally, given the sluggish second-hand car market in Malaysia, where some of the used cars are selling at almost scrap metal prices, we believe there will be not many used cars brought into Malaysia despite the relaxation," he said.
The Edge Financial Daily had recently reported that Pekema was now allowed to import other brands of used cars, apart from BMW, Mercedes Benz and Toyota Harrier, but limited to a maximum of 3% of the total industry volume.

Proton GEN.2 to be sold in China

Proton Holdings Bhd has inked an agreement with China's Jinhua Youngman Automobile Manufacturing Co Ltd to sell 30,000 units of its GEN.2, rebranded the Europestar, in China.

The national car maker said Youngman, apart from reselling Europestar, will eventually develop a new range of 'Made-in-China' Europestar cars with the engineering services of Lotus.

Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir in a statement said the agreements with Youngman would enable Proton to sell its products and commercialise its technologies in China.

Proton said car ownership in China was currently at only 1% of the population. With the middle-income group growing in size spurred by economic growth expected to be above 8% annually, the car market is estimated to be revved up by 20% to 30% annually in the next few years.

Youngman is a commercial vehicle manufacturer that has been awarded a licence from the Chinese authorities to produce passenger vehicles.

Proton said the luxury coach and truck maker does not only have a wealth of experience in the Chinese market but has also formulated aggressive plans for its new Europestar brand.

The agreements were signed by Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir while Youngman was represented by its chairman Pang Qingnian.

In a filing with Bursa Malaysia, Proton said the agreement, signed by wholly-owned subsidiary Perusahaan Otomobil Nasional Sdn Bhd, will see the supply of the 30,000 GEN.2 car to Youngman for a period of 20 months from the date of first delivery.

"At the same time, the company, through its 55% owned subsidiary, Proton Parts Centre Sdn Bhd, will supply genuine service parts to Youngman," said Proton.

"The relationship of Proton and Youngman is one of independant contracting parties and shall not be construed as creating an agency or partnership between the parties," said Proton.

The agreement firms ties with Youngman first established with Proton with the signing of a Memorandum of Understanding in May 2006 on the licensing of technologies.

Proton said the MoU was for a joint feasibility study on designing, developing and selling completely knocked down (CKD) vehicles in China.

13-07-2007: Proton makes headway into China

PETALING JAYA: Proton Holdings Bhd has made headway into the China market which will see the loss-making car maker supplying 30,000 completely built-up (CBU) cars.

Proton said on July 13 that its unit Perusahaan Otomobil Nasional Sdn Bhd would supply the cars to Jinhua Youngman Automobile Manufacturing Co Ltd, China's leading commercial vehicle manufacturer.

Under the agreement, Youngman would import 30,000 Gen.2 CBU units and resell under its own brand "Europestar" and eventually, develop a new range of made-in-China “Europestar” cars with the engineering services through Lotus.

In addition to this, the arrangement would also encompass the technology licensing of the Gen.2 platform, Campro engine for Youngman’s new “Europestar" cars and supply of genuine spare parts.

The agreements were signed in Zhejiang, China, by Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir, while Youngman was represented by its chairman, Pang Qingnian.

Proton also said its 55% owned Proton Parts Centre Sdn Bhd would supply genuine service parts to Youngman.

"Youngman will also have access to engineering and development consultancy services from Proton via its subsidiaries in the LOTUS Group of Companies, for the development of complete-knocked down (CKD) cars for Youngman in China," it said.

Proton said the relationship of Proton and Youngman was one of independent contracting parties, adding that it should not be construed as creating an agency or partnership between the parties.

It also said that Youngman had been awarded a licence from the Chinese authorities to produce passenger vehicles. It added that the luxury coach and truck maker has a wealth of experience in the Chinese market.

"With the signing of this Agreement, Proton will gain market access into China, and launch Proton's ascent to the next level of growth in export and international sales optimisation," it said.

Syed Zainal said that these were landmark win-win agreements, as it would enable Proton to sell its products and commercialise its technologies in China through Youngman for their brand of passenger cars in a huge market with promise of exponential growth.

Car ownership in China is only 1% of the population. With the middle-income group growing in size spurred by economic growth expected to be above eight per cent annually, the car market is estimated to be revved up by 20% to 30% annually in the next few years, it said.

12-07-2007: Will Proton be privatised?

Talk of Proton Holdings Bhd being taken private has surfaced yet again as the car maker continues its search for the elusive foreign strategic partner.

In a repeat of its view more than a year ago, JP Morgan yet again believes that Proton may be headed for privatisation, and "broken up", with key assets injected into a newco that will facilitate the entry of the foreign partner.

JP Morgan has even upgraded its outlook on Proton to neutral with a target price of RM6 on the assumption that the government would privatise Proton as a first step to the restructuring story.

"Our upgrade lies in the assumption that the government will privatise Proton as a first step to the restructuring story, before the assets are re-injected into a private entity.

"Although the outcome of the negotiations with VW is still inconclusive, we believe that a decision will be made rather soon given the impatience of all parties involved to resolve the issue," it said in a report.

Proton shares shed 10 sen yesterday to RM5.95 with 1.13 million shares traded.

JP Morgan believes that a local party, most likely Khazanah given its 42.7% stake, would privatise Proton, where it would then break up Proton and inject key assets into the newco whereby VW would take up 51% and the rest by a local party.

"We believe that this is the most likely outcome arising from the negotiations, given that VW is only interested in the selected few assets in Proton.

"Proton would need to be privatised and be removed from public scrutiny and public shareholders in order for the "break-up" on Proton to take place," it said.

"Summing up the existing shareholdings of the government, which include Khazanah, EPF (Employees Provident Fund) and Petronas, we find that sovereign control amounts to over 65% of total shareholders," it said.

"We are also uncertain whether VW will offer cash, shares, a waiver-in-kind for the royalty fees, or a combination of the above in exchange for the 51% stake of the newco," JP Morgan said.

It also believes that the deal structure would be complex and would serve to benefit VW rather than the government, despite the government 's intention to retain the identity of Proton. "While we do not think that the local bidders are capable of solving the issues plaguing Proton, we expect a local party to absorb the remaining 49% of the newco, assuming that Proton will remain as a private entity," JP Morgan said.

However, SJ Securities research head Cheah King Yoong disagreed with the view as Khazanah would have to pay too high a price for the exercise.

"If you were to take into account that Khazanah is in talks with VW for the Proton stake, as well as its assets, Khazanah will have to pay RM9.52 per share."

Khazanah would need to pay about RM3 billion to take Proton private. Proton has a total of 549.213 million shares, of which Khazanah owns 42.7%.

Cheah said there was also "market talk" that VW now wanted a stake in the holding level of Proton and this makes the move to privatise Proton even more unlikely.