Malaysia's once mighty carmaker Proton trying to regain its drive

Prime Minister Najib Razak preparing to take the driver's seat in a new fourth-generation Proton Perdana sedan yesterday, during the launch of the Malaysian car manufacturer's latest vehicle.
Prime Minister Najib Razak preparing to take the driver's seat in a new fourth-generation Proton Perdana sedan yesterday, during the launch of the Malaysian car manufacturer's latest vehicle.PHOTO: AGENCE FRANCE-PRESSE

KUALA LUMPUR • The RM1.25 billion (S$413 million) financial lifeline that Prime Minister Najib Razak's administration threw at carmaker Proton sparked talk that Malaysia is returning to its bad old ways of bailing out its politically favoured corporate sons.

But Proton's owner, the DRB- Hicom conglomerate, insists that the cash injection last week is not a bailout and that it has no intention of surrendering the carmaker to the government.

"We received a soft loan with very strict conditions. We have every intention to pay, otherwise the government will take it (Proton) over for a song," says a senior DRB- Hicom executive who oversees the group's auto division.

The national carmaker is on the ropes, struggling with woes ranging from mounting debts and slumping sales to a deficit of cash to pay its suppliers. The company has bled losses of more than S$850 million in the last four years and over the past 18 months DRB-Hicom has repeatedly applied to the government for financial assistance.

 

Proton's market share in Malaysia was more than 60 per cent in the 1990s. But for the whole of last year, Proton sold 102,175 cars - 15.3 per cent of 666,674 vehicles sold in Malaysia.

Datuk Seri Najib yesterdaylaunched the fourth-generation Proton Perdana sedan, priced from RM113,888.

Unlike previous administrations that coddled the carmaker, the Najib administration has played hardball with Proton, which has been a drain on public funds.

Since it began operations in 1985, Proton has received close to RM14 billion in grants and other financial aid from the government.

The fresh cash injection last week came two months after Proton's chairman, former prime minister Mahathir Mohamad, resigned. He had been at political loggerheads with PM Najib.

Under the new aid package, Proton must declare annual dividends, relocate to a new plant in the central Perak state and find a "strategic and renowned partner" to make it internationally competitive. DRB- Hicom executives say the move to the new plant in Perak would help it realise the real estate potential of its current facility on the fringes of Kuala Lumpur.

The company says the land in Shah Alam, Selangor, carries a market value of just over RM1 billion and has a gross development value of close to RM7 billion.

Proton is also actively vetting potential suitors to form strategic partnerships. It has a working relationship with Japan's Suzuki and is exploring possible collaborations with French carmakers Peugeot and Renault, DRB-Hicom executives say.

Proton has 10,000 employees, and the wider ecosystem of parts suppliers and other related services employs a further 30,000 people. Recent production cutbacks have hurt auto component makers, which are now being offered unsold cars as payment.

The carmaker is also bleeding cash. It loses roughly RM25 million each month on interest charges on loans and the financial load on its growing stockpile of unsold cars, company officials say.

Leslie Lopez

A version of this article appeared in the print edition of The Straits Times on June 15, 2016, with the headline 'Malaysia's once mighty carmaker trying to regain its drive'. Print Edition | Subscribe