This article first appeared in The Edge Financial Daily on May 25, 2017

PUTRAJAYA: The documents on the sale of a 49.9% stake in ailing national carmaker Proton Holdings Bhd may have been signed, but how will DRB-Hicom Bhd work with new partner Zhejiang Geely Holding Group Co Ltd remains a question.

Geely, which signed a heads of agreement to buy the stake in Proton, will take lead of the carmaker’s operations, including its production, sales and marketing divisions, according to Datuk Seri Syed Faisal Albar, group managing director of DRB-Hicom.

However, despite the 50.1% stake DRB-Hicom continues to retain in Proton, Syed Faisal said there will be joint management of the board by both Geely and Proton’s current management team.

“The deal will enable Proton to tap into Geely’s vast range of platforms and power trains, and will also enable Proton to have access to existing markets of the Chinese carmaker, as well as right-hand drive markets in Southeast Asia,” DRB-Hicom said in a press release yesterday.

Hong Kong-based automaker Geely, which also controls Volvo Car Corp and The London Taxi Company, edged out France’s Groupe PSA, which had also expressed interest in acquiring a stake in Proton.

Of the three companies under Proton, Syed Faisal said that DRB-Hicom would maintain control over Proton’s distribution arm, Proton Edar Sdn Bhd.

“In Proton, we will [also] have more management control, [but] production will be jointly managed,” Syed Faisal told the media after the signing ceremony yesterday.

Apart from new technologies and capital injections, Geely also said that it would bring “globally renowned talent” into Proton’s management team. Its partnership with Proton will be focused on helping the Proton brand to grow with a target of 500,000 cars across Southeast Asia by 2020 through the partnership.

Syed Faisal highlighted that Geely had maintained Volvo’s logo on its headboards as it understood Swedish pride in the brand, and stressed that it would be the same for Malaysia’s national carmaker.

“The collaboration is entirely about Proton, and the models that we develop in collaboration with them will be closely modelled on Geely cars. Their entire operations in Malaysia will be through Proton,” he said.

On the subject of Proton’s current engine development programme, Syed Faisal clarified that it is part of a long-term outlook and that Proton’s vehicle development would continue together with Geely, with which it is still in discussion.

“This is just the heads of agreement; we do not want to make a major decision now. We will wait for a definitive agreement to be signed,” he said.

The price tag of the sale is also dependent on the definitive agreement. Syed Faisal declined to disclose the “ballpark figure” it is still negotiating with Geely for the stake, but said that DRB-Hicom is “definitely not selling at a premium; we are sharing at a fair value”.

He highlighted two key considerations for arriving at the final price, the first of which involves the value of Geely’s capital injection into Proton, which was also undisclosed.

“The second is the platform of [Geely’s Boyue] SUV (sport utility vehicle), the value of which we will need to ascertain,” Syed Faisal said.

“[What we have signed] is just the heads of agreement; only the definitive agreement will have regulatory approvals and so on. So, in terms of pricing, it is still being discussed and finalised,” Syed Faisal said.

On the fate of Proton’s staff, vendors and suppliers, Syed Faisal allayed fears of retrenchment or loss of contracts.

“We need to emphasise that the national car status remains, and because of that, the industrial linkage programme remains,” he said, adding that the guidelines of the programme specify percentages of locally manufactured components in “national cars”.

Meanwhile, he said that there should be a growth in employees instead of staff retrenchment.

“Without a strategic partner, there is a high chance that we are going to retrench many people,” he said, citing that the growth opportunities from its partnership with Geely would be positive for employee growth as well.

However, Syed Faisal noted that due to the relocation of Proton’s operations to Tanjung Malim, the group would see “some kind of rationalisation process [at the Shah Alam plant]”.

The Shah Alam plant was, interestingly, removed from DRB-Hicom’s deal with Geely, as were other parcels of land belonging to the conglomerate surrounding Proton’s factory in Tanjung Malim.

The capacity of the Tanjung Malim and Shah Alam plants is 150,000 units and 200,000 units respectively.

“The land [in Shah Alam] will be transferred to DRB-Hicom at a fair price, and we will have an opportunity to develop the 250 acres (101.17ha),” Syed Faisal said, adding that the relocation will only happen after five years.

As for the future of Geely’s Volvo cars under the new partnership, Syed Faisal said Geely intends to grow the Volvo market in Malaysia.

“[This] certainly needs more capacity to assemble, so they will use our facilities to assemble and we will get a fee,” he added.