GERMAN MEDIA FRENZY OVER POSSIBLE VW-PROTON ALLIANCE
Wednesday, October 10, 2007; Posted: 02:06 AM
FRANKFURT (Germany), Oct 10, 2007 (AsiaPulse via COMTEX) — Germany’s print and broadcast media, not to mention the specialised trade media, have been churning out reports over the past few days about an impending deal between Wolfsburg-based giant carmaker Volkswagen (VW) and Malaysia’s national car company Proton (KLSE:5304).
Germany’s leading dailies such as the Frankfurter Allgemeine Zeitung, Die Welt and the Handelsblatt have been speculating that VW may finally be on its way to forming an alliance with Proton, by either acquiring a 20 per cent stake in Proton or forming a joint venture company which would include Proton assets.
Later, VW might increase its stake in Proton to 50 per cent. An indication to this effect was given by VW head Martin Winterkorn himself in a recent interview with the Frankfurter Allgemeine Zeitung, when he said that VW would “move in that direction”.
VW’s acquisition of Proton will strengthen the German carmaker’s position in Southeast Asia.
But VW, according to Winterkorn, would like to see the risks minimised and is also interested in Proton’s extensive network of dealers and agents.
But he also emphasised in the interview that VW was “nowhere even near a due diligence”. He would first see what concessions Malaysia had to offer.
However, German industry pundits said that VW could afford the luxury of waiting longer while the Malaysian side could not.
Indeed, VW will insist that the Malaysian government provides a “soft landing” cushion to compensate it against any losses at Proton for, at least, three years.
Winterkorn, who has been steering the management wheel at VW since last year, is expected to visit Malaysia “in the very near future”, as one company spokesman said, without elaborating.
The “on-off-on” talks between the two sides were first initiated in October 2004 when the Malaysian side, no longer able to withstand the financial bleeding of the national carmaker, was desperately looking for a foreign partner who could either turn around the loss-making Proton or completely take over the company.
Most German analysts see the comments made by Malaysian Prime Minister Abdullah Ahmad Badawi as providing clues to Proton’s future survival. Abdullah said recently that Volkswagen was studying Proton for a possible strategic deal that could help “save” the Malaysian carmaker.
The word “save” is the keyword here as it implies, according to German industry experts, that Proton faces a gradual corporate death if it is not quickly resuscitated by someone with the financial muscle of VW.
The VW management is, ostensibly, conscious of the fact that a deal with Proton would not only catapult the latter to regain the top spot in Malaysia’s car market, but also enable it to get a foothold inside Europe which it has already tried in the past but was unsuccessful because of its high prices.
Due to Proton’s plight, VW believes that it holds the better card in the corporate poker game.
VW seems to relish its unique position. With rivals General Motors and French carmaker Peugeot having withdrawn from partnership talks with Proton, VW is now the only one whom the Malaysian carmaker has to turn to.
The fact that Proton reported a loss of RM46.75 million in the first quarter to June has further strengthened VW’s bargaining power because it knows that the Malaysian government will now be under pressure.
“It’s a buyer’s market,” said Wolfgang Frank, a Frankfurt-based German analyst who works for a local bank and monitors the automotive market.
But a recent analysis by A.T. Kearny projects Malaysia as not relevant in the near future for carmakers, either as a market or as a production site.
The study, a copy of which the Duesseldorf-based Handelsblatt claims to be in its hands, has raised questions in German industry circles as to why VW wants to get involved with Proton.
A.T. Kearny’s Foreign Direct Investment Confidence Index, which reflects the investment plans of international corporate executives, showed that China and India lead the list of favourite investment destinations while Malaysia ranks 35th.
Frank Rattey, one of the authors of the study, said that the costs are much higher in Malaysia than China and the market is limited.
Also, the government does not want Malaysia as a production site but only as a site for high-value services, particularly for financial institutions.
According to Kearney, nearly half a million cars will leave the assembly lines of Malaysia’s automobile plants this year.
A total of 15 car plants are based on the western Malaysian peninsula, where in addition to Proton, rival car manufacturers such as Perodua, Toyota, Honda, Hyundai and the alliance partners Renault-Nissan assemble and build cars.
The biggest plant produces 250,000 units each year and is operated by Perodua together with Toyota.
The company produces cars under licence from the Toyota associate Daihatsu.
Perhaps, as German analysts speculate, the temptation for VW to join hands with Proton does not lie in Asia but in England where the British sports car plant Lotus, a Proton associate, is based.
(BERNAMA-OANA)