Proton To be Reorganised
There was once a time when a car manufacturer was just a manufacturer of cars and did little else. That was in an era when competition was not global and not as intense as it is today where margins are being cut in order to ‘stay in the game’. Just making and selling cars alone is not enough now and to make lots of money, you need to sell lots and lots of cars… which is tough in these times.
So the next thing is to diversify and exploit the competencies the company has developed over the years, reducing dependence on revenues from just selling cars and deriving revenues from new types of businesses which could also have certain synergies with the car business.
This is the business model which Proton is now embarking on in its reorganization plan announced this evening. The reorganization will see the establishment of a new company (Newco) which will become a holding company for the various divisions of the present Proton organization which will be turned into standalone business units. At this time, the divisions are manufacturing, sales and marketing, engineering services and ancillary services.
Each of these divisions will become a company on its own which will have to look after its own profits and losses, with the Newco having an equity that is most likely to be majority. This means that each of these companies will not only ‘service’ each other in the big picture of Proton but also have to go out and offer their services to other parties to derive revenues.
One area which has long been viewed as being a strong revenue-earner has been Proton’s R&D division, which would come under engineering services. From the time it was upgraded in the late 1990s, Tengku Tan Sri Dr Mahaleel, CEO of Proton, had been saying that it can and should function like Lotus Engineering and sell its services. It is the only automotive R&D centre in the region (although Toyota is known to be planning on setting up on in Thailand next year) and has lots of capabilities and facilities, including the largest Rapid Prototyping facility outside Japan.
However, so long as it has been a division within Proton, selling its services to outside parties – especially other car manufacturers – has been difficult. Understandably, other companies would not feel comfortable using the services of a division of a rival to help develop their new models!
So by turning the R&D division into a company on its own, with the Newco having a stake and perhaps other parties also making investments, it can now go out and offer its services to other companies because it is not a division any longer. Of course, it may still have a share by the Newco which, in effect, is Proton, but it is not a division within Proton and that does make a difference.
On the question of confidentiality when this R&D company starts working on projects for, say, Proton’s rivals, it would have to assure its clients that whatever it does for them will not be leaked to Proton. Clearly, as a professional company, this would be expected and it obviously can be done, as demonstrated by Lotus Engineering which does work for GM/Opel, Toyota and a number of other car companies which sometimes do not want to be named. Proton owns Lotus Engineering but it is almost certain that whatever is done for these other companies is not shared with Proton product planners.
Thus the whole exercise of reorganization is something like privatization of government departments. Where departments like Telekom and Waterworks were under the government umbrella and payroll, they are now independent business units which have to generate their own incomes and make profits. Likewise for the divisions of Proton in years to come.
In the reorganization plan, which is expected to be completed by the end of March 2004, the Newco will be incorporated and Proton Berhad will be delisted from the KLSE so its status can be transferred to the Newco. All shareholders of Proton will get a 1-for-1 share exchange and get an equivalent stake in the Newco. Following this, Proton will become a wholly-owned subsidiary of the Newco. There will be no change in the issued and paid-up capital of Proton.
“This reorganization will allow Proton to seek new areas of growth, which it has the capability to capitalize on, especially with the resources available to us such as the 100%-owned Lotus Group International group of companies,” said Tengku Mahaleel.
“With the global automotive industry undergoing major changes in automotive production, market liberalization and the reorganization amongst international automotive companies, it is vital that Proton, as a major industry player, move in tandem with these developments to withstand the impact of the regional policies and strategies on the automotive industry,” he added.
