EON to become ‘Super Dealer’ of Proton Edar
After years of negotiation, EON and Proton have finally been able to shape an agreement for distribution in which there is said to be a ‘win-win’ situation. The lengthy negotiations had started after the distributorship agreement for EON – which had been the main Proton distributor since the inception of the national car project in 1985 – had lapsed.
A number of key issues had to be negotiated before a new distributorship agreement could be signed, including Proton’s expectation that EON – a public-listed company and subsidiary of DRB-HICOM – not represent any other makes. That issue was eventually set aside when the Prime Minister gave his blessings for EON to take on the VW/Audi franchise last year, an indirect indication of his views on the matter.
The most difficult to resolve was Proton’s condition that its two Malaysian distributors (the other being Proton Edar) contribute to the R&D cost of future products. While the cost of developing a new model is astronomical (the Waja is said to have cost close to one billion ringgit),it is unusual for a manufacturer to ask its distributors to help pay for the development of new products. However, Proton being a national car manufacturer, the situation is different and the move is ‘in national interests’ to ensure the survival of the national carmaker in the AFTA/WTO era.
While Proton-owned Proton Edar obviously had no problems agreeing to the requirement which was integral in the distributorship agreement, EON was unwilling to do so. The amount to be contributed would be extremely high and would certainly impact EON’s profitability, Furthermore, a study of the tax implications showed that the amount contributed could not be considered a deductible business expense in as far as the IRB was concerned.
Insiders say that it is this issue which had led to EON refusing to sign and with its original distributorship agreement having lapsed, it was being supplied vehicles on a ‘month to month basis’.
Though Proton had Proton Edar (PE) as a second distribution channel, PE’s network was much smaller than EON’s, which had been built up over more than 15 years. Thus the notion that Proton could stop using EON was unfounded though there was speculation over the years that this could happen. Cutting off a big chunk of its retail network would not serve Proton’s interests so status quo was maintained while negotiations dragged on.
The impasse ended today with EON signing a Memorandum of Agreement (MoA) with PE to become a ‘super dealer’ of PE undertaking the sale of all Proton models until the termination of the distributor agreement on 31 December 2009 between Proton and Proton Edar.
The agreement with EON is effective from April 1 2003 and reaffirms EON’s commitment to remain as a major player in the national car project. EON will maintain a network of sales branches and franchise sales dealers dedicated to the Proton marque while its after-sales outlets will continue to support all Proton products.
The new arrangement, according to a source, will facilitate the combination of both EON and PE’s resources to rationalise and streamline the sales and after-sales services of Proton vehicles, leading to the consolidation and strengthening of Proton’s brand presence, a key strategy in the face of AFTA. Under the MoA, EON expects to purchase not less than 100,000 units of all models of Proton vehicles annually.
“Existing margins of EON on all models currently sold by EON shall be maintained,” revealed EON managing director Datuk Adzmi Abdul Wahab. “Margins for all other models and variants not sold by EON shall be mutually agreed but EON as a super dealer shall be allowed a preferential margin from the other dealers,” he added.
The MoA also allows for EON to market other marques under separate entities and on separate premises. EON’s after-sales network will operate on a multi-brand basis to cater for both Proton as well as non-Proton marques.
By being a ‘super dealer’, the contribution for R&D becomes a non-issue for EON since it is no longer a ‘distributor’.
The MoA, signed this evening, is expected to lead to the formalisation of a super dealership agreement within the next three months.
