Proton_Iriz_Review_ 019

While the current Proton-Suzuki partnership is only involved in the distribution of the former’s products and the rebadging of the latter’s, it could eventually expand into a deeper research and development collaboration, according to The Sun.

The English language daily quoted an industry observer, who said the Japanese carmaker would be a “natural fit” for Proton, as the existing tie-up concerns the assembly and sale of an entry-level A-segment vehicle for the Malaysian market.

Last June, the two companies signed a memorandum of understanding (MoU) and licence agreement to form a long-term strategic collaboration and partnership. While the deal would initially only enable Proton to sell rebadged Suzukis, it did allow both companies to explore the possibility of jointly developing new models.

This revelation follows the confirmation last Friday that the national carmaker had secured a RM1.5 billion soft loan from the government. The deal came with several strings attached, including the requirement to rope in a notable foreign partner to improve Proton’s R&D capabilities.

Malaysian Automotive Institute (MAI) CEO Mohamad Madani Sahari said that the foreign partner should not only collaborate with Proton in research and development, but also assist it in expanding its market, particularly overseas.

Proton Suzuki MOU_ 010

“Discussions between Proton and Suzuki have started and details have yet to be concluded. Therefore, I think we should give both parties time to deliberate,” he said, adding that the extent of the partnership should be thoroughly discussed with a clear outcome to make Proton’s business plan viable and sustainable.

Madani also said that the future of Proton’s ecosystem of its hundreds of vendors, dealers and supporting industries needs to be secured. “There are some 60,000 people who are directly dependent on Proton and about 130,000 more who are indirectly involved. This is just too big to fail.”

Echoing his statement, Hong Leong Investment Bank Research analyst Daniel Wong said that the partnership could just work in Proton’s favour. According to him, a technology partnership like this would open up an opportunity to leverage on new technologies and develop products for specific market niches.

“Going forward, in return for sharing its technology capabilities with Proton, Suzuki can use Proton’s platform to grow its presence in Southeast Asia,” Wong said.

The publication gives the example of Suzuki’s partnership with India’s Maruti, which first existed as a licence and joint venture agreement in 1982. It added like Maruti, like Proton, was also facing problems with public perception, but has now entered a more premium segment through its Nexa dealerships, which sell the more expensive Baleno and S-Cross. Suzuki now owns just over 56% of Maruti Suzuki India.

Proton Aria

Theophilus Chin’s rendering of a “Proton Aria,” a rebadged Suzuki Celerio

Taking the opposite stance was AmInvestment Bank, which expressed doubts of the government grant being adequate to stem Proton’s losses amid falling sales. The research house held particular concern over the absence of a plan involving an incentivised equity strategic partnership with a foreign partner which will utilise Proton’s excess capacity.

“It has been reported that Proton’s Shah Alam and Tanjung Malim plants are only operating at 35% utilisation rates. Proton sales fell 12% year-over-year to a low of 102,175 units last year, and the outlook remains bleak amid stiff competition from Perodua and foreign brands,” said analyst Thomas Soon.

The company’s financial performance continued to be strained by thin margins and considerable financial commitments, including a RM268.5 million annual term loan payment that stemmed from the restructuring of debt obligations of its subsidiary, Group Lotus.

Meanwhile, another analyst said that the RM1.5 billion loan could only sustain Proton for two or three more years, considering that the company racked up over RM2.5 billion in accumulated losses in 2015.