When Bill Ford took over the family firm he had to dispose of some acquisitions made under the previous regime, writes Karl Ludvigsen. Neither the British KwikFit chain nor the Norwegian Think! electric-car operation looked like justifying the expenditure of more Ford money and executive time.
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Now imagine that Jac Nasser and Bill Clinton teamed up to lambaste Bill Ford and his management in public for letting these go without adequate compensation. Imagine further that they demanded answers to eight specific questions about the selloff, probing into the decision to sell and the amounts received, stirring up vigorous and critical press and public discussion about Ford and its management.
That’s just the situation in which the chairman of Malaysia’s Proton finds himself. When Datuk Mohammed Azlan Hashim left his job as head of Kuala Lumpur’s stock exchange a year ago to take over Proton’s chairmanship he faced a number of challenges. Thanks to falling import tariffs Proton’s domination of its domestic market is under heavy pressure from rivals, its share shrinking from almost two-thirds of the home market to some 40 per cent. Tie-ups with foreign partners were looking hard to arrange, although talks were ongoing with Mitsubishi and Volkswagen.
Datuk Aslan found one other big headache at Proton. In 2004, under previous chief Tengku Mahaleel Tengku Ariff, a Proton subsidiary had spent €70 million to acquire a 57.75 per cent interest in struggling Italian motorcycle maker MV Agusta Motors. The deal, which was supposed to provide benefits in both product technology and manufacturing know-how to Proton’s automotive operations, didn’t allow the Malaysians to exert control over MV Agusta, in spite of their majority ownership.
Good money was flowing after bad into the coffers of MV Agusta. Officially Proton provided another €44 million to help the motorcycle company restructure and make its move upmarket, but some observers think the true figure is many times that. The crunch came last September. Datuk Aslan learned that while MV Agusta was demanding €40 million in the short term and another €66 million soon thereafter, it was still unwilling to grant management control. The ways of doing business in Italy, he quickly discovered, were less straightforward than elsewhere.
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By GlobalDataSeeking a buyer for MV Agusta, Proton instructed its subsidiary to bring in its investment bankers. The latter found an Italian property which, to quote a Proton report, ‘had negative shareholders’ funds, was cashflow deficit, [had a] track record of years of losses and no concrete business plan moving forward.’ While it was splashing out on fancy showrooms the company’s motorcycle sales were negligible, not even into five figures a year. As collateral against which to negotiate a loan, Agusta’s existing bankers said that ‘they viewed the shares as worthless’.
The upshot was that on 1 March 2006 in Varese, a deal was signed for Genoa-based investment holding company GEVI SpA to acquire Proton’s shareholding for a nominal one euro. GEVI pumped in more capital and now holds 65 per cent of MV Agusta. I’m sure that Datuk Aslan and his colleagues wish them the best of luck. I’m sure as well that much as BMW disposed of its investment in MG Rover for a tenner the managers at Proton are now happy to see the back of an investment which seemed certain to be a long-term drag on the company.
Bizarrely, however, former Proton head Tengku Mahaleel has gone public with his outrage over the disposal of the MV Agusta interest. Even more spectacularly former Malaysian premier Dr. Mahathir Mohamad has added his indignation to what’s become a cause celebre in Kuala Lumpur. The 2M, as they’re known, issued joint statements reacting angrily to the divestment and, as well, to costly Proton marketing initiatives aimed at stemming the slide in domestic sales. Separately, Tengku Mahaleel accused both the nation and its auto industry of ‘losing its way’ and threatening to tip over into a role as ‘a labour supplier in the industry’, simply screwing together imported products.
The task facing Proton is indeed daunting. Once ambitious as an exporter of autos to the world, Proton had its wings clipped by Mitsubishi in the late 1980s in return for the latter’s help with product development. Since then its Korean rivals have roared ahead with broad model ranges and competitive quality that have left Proton in the dust. It faces a hard slog in developing new models that will allow it to develop the export markets that it desperately needs.
This is where partnerships come in. After the collapse of a 2004 deal to assemble Volkswagens in Proton’s plants, VW has agreed to supply technology and, in the words of Bernd Pischetsrieder, to support Proton ‘in a few isolated projects’. The link with Mitsubishi has been renewed, providing vehicle-development assistance and updated production technology. Later this month Proton expects to announce another partnership, thought to be with a Chinese company. Whatever the deal, it has to offer the prospect of help with the promotion of exports. In the motor industry a good offence is the best defence.
But with all the turmoil over the disposal of underperforming MV Agusta, there should be worries among 1,200 executives and engineers at far-away Norfolk. Proton is also the owner of Lotus. With its roster of past owners including such eminent names as Toyota, General Motors and Bugatti, Lotus has been in Proton’s portfolio since 1996. It too is a money-loser, €10.5 million in 2005, though credited with many improvements to Proton’s model range.
At Geneva last month Datuk Aslan affirmed Proton’s support for Lotus. The launch of its new Europa S, he said, was ‘a declaration of Proton’s backing and support for one of the world’s leading automotive and engineering companies.’ Some observers, however, have not found the Europa S all that convincing. Nor has Lotus found a customer for its ‘Versatile Vehicle Architecture’ as displayed at Detroit and Geneva in its APX concept. Affirmation from the top or not, if I were at Lotus I’d be starting to prepare for life after Proton.
– Karl Ludvigsen
Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.
