BANGKOK -- Even with support from Zhejiang Geely Holding Group, Malaysian automaker Proton Holdings has a difficult route to travel amid stalling sales at home as well as the duo's underwhelming brand power abroad.
The Chinese company agreed late last month to buy 49.9% of Proton from DRB-Hicom, letting the Malaysian corporation retain a majority stake and promising to protect Proton's "national car" status. But the move was seen as Geely taking the lead in overhauling the ailing brand.
Falling out of favor
"They say Proton is my brainchild," former Prime Minister Mahathir Mohamad wrote in a blog post dated May 25. "Now the child of my brain has been sold."
"Yes. I am sad," he wrote. "I can cry."
Tears or no, the support of a foreign investor had looked like Proton's only hope. The brand's sharply deteriorating performance in the last two years has weighed on DRB-Hicom's books.
The surest indicator of Proton's decline is its vehicle sales in the domestic market. The company has seen its market share slide since giving up the lead in 2006 to Perodua, a national rival backed by Toyota Motor unit Daihatsu Motor. Proton's share hit just 12% in 2016, with vehicle sales totaling around 72,000 units.
The sales slump has dealt a direct blow to parent DRB-Hicom. The Malaysian company posted a loss of 1 billion ringgit ($234 million at current rates) for the automotive segment, of which Proton is a pillar, in the year ended March 2016. This marked a plunge from the year-earlier 64 million ringgit profit. And for the year ended this past March, the segment's loss topped 950 million ringgit.
DRB-Hicom's profits from real estate, construction and services businesses were washed away in the red ink from the automotive segment, leading to two straight years of operating losses. The segment has generated losses exceeding 1.6 billion ringgit since the corporation brought Proton under its umbrella in fiscal 2012.
Positive thinking
Still, Geely is upbeat. It understands that Proton is loved by Malaysians, Geely CFO Daniel Li Donghui said in a joint news conference May 24, adding that the brand would be kept. The Chinese automaker could burnish the rusty brand by revamping the product line and renovating dealerships, for example, but it will have its work cut out for it.
Geely may have also set its sights on exporting Proton vehicles to other Southeast Asian countries or elsewhere, but this too would be a tall order. The Malaysian brand sold 99% of its vehicles at home last year, according to MarkLines. With Geely also relying on the Chinese market for 97% of its vehicle sales, it is difficult to see a path for two such inward-facing automakers to break into other markets where neither brand has earned much recognition.
Li also said Geely aimed to produce half a million vehicles in Malaysia by 2020. Proton's annual production capacity now stands at around 350,000, likely necessitating heavy capital spending to meet the goal. Geely may not have much time to spare.
