Focus: Proton-packed Geely takes on Honda and Toyota in Southeast Asia
29/01/2020 24:30
* Malaysia's Proton to expand across region - CEO Li
* Thailand and Indonesia are the key markets - Li
* Carmaker outlines aggressive cost-cutting measures
* Include switching to cheaper components from China
By Liz Lee and Krishna N. Das
KUALA LUMPUR, Jan 29 (Reuters) - Li Chunrong was hired by
Chinese automaker Geely to revive the fortunes of the Proton
brand in Malaysia, and it took him two years to eclipse Japanese
giants Honda and Toyota. Now he plans to take the fight across
Southeast Asia and beyond.
Li, appointed Proton CEO in 2017 when Geely acquired 49.9%
of the company, has turned around a once-celebrated Malaysian
marque that had to rely on state aid after a string of losses,
with his success built on an aggressive cost-cutting drive.
Now Geely has told the Proton boss to expand across the
region, initially focusing on Thailand, Indonesia, Singapore and
Brunei, Li told Reuters - the first time concrete details of the
brand's expansion plans have been disclosed.
Like Malaysia, they are right-hand drive markets so require
fewer car modifications. Proton also aims to drive into the
Middle East and increase sales to Egypt, said the 56-year-old
Chinese national.
Li did not give specific timeframes for expansion into
individual markets, but said Proton wanted to raise overseas
sales - which stood at about 1,000 cars last year, or 1% of
total sales - at least four-fold this year.
The carmaker wants 40% of its sales to come from foreign
markets by 2027, he told Reuters in two interviews, identifying
Thailand and Indonesia as the key markets but declining to
outline his strategy to crack them.
"We have a good foundation," he said. "We commit that, every
year, we will launch a new model."
The Association of Southeast Asian Nations (ASEAN) region of
over 500 million people is promising territory; car sales are
forecast by consultancy IHS Markit to grow at a compound annual
rate of 3% in 2016-2020, compared with a 1% drop globally.
But IHS said Proton was still a small player compared with
the Japanese brands, and that it could struggle to compete.
ASEAN sales are led by Toyota with a 30% market share, Honda
with 13% and Mitsubishi 7211.T with 10%, according to the
consultancy. Proton is in 11th place with about 3%, mainly from
Malaysia.
Proton's goals are ambitious and it may not have the
production capacity to make inroads regionally, said Mayuree
Chaiyuthanaporn, a senior IHS analyst.
"In terms of sales, Proton may not be successful outside
Malaysia," she added.
Geely said Proton had performed well in the past two years
and it was committed to seeing the Malaysian company be a
leading brand in Southeast Asia.
EXPORTING COSTS MODEL
Proton, majority-owned by Malaysian conglomerate DRB-HICOM
DRBM.KL , has launched products at a breakneck speed in its
home market. It dropped many old models the first year of the
joint venture, and then launched six new ones within eight
months, including the X70 SUV based on Geely's Boyue.
It became the second-largest car seller with a 16.7% share
last year - when it made its first profit in about nine years -
climbing above Honda and Toyota from fourth position.
Li said Proton could beat Malaysia's top seller Perodua,
backed by Japan's Daihatsu 6023.T , by 2022 - five years ahead
of the target announced after Geely's investment.
Proton outlined to Reuters some of the cost-cutting measures
that have bolstered its Malaysian fortunes - and that could be
key for success in its expansion drive. Some of the rapid
changes have, however, jarred local sensitivities, a problem
that it could also encounter in other countries.
The carmaker has increasingly switched to sourcing cheaper
components from China, and let go of many small local
distributors, stoking some resentment. It has also been trying
to get more Malaysian vendors to partner with Chinese suppliers,
in a bid to get them to cut costs by 30%.
Proton, which saved 250 million ringgit ($61.5 million) in
costs in 2018, has also cut its warehouses to four from 16 and
sold 1,000 of its 1,500 company cars. Its drive has even
extended to stopping newspaper subscriptions for all executives
apart from Li's deputy.
DISCORD WITH DEALERS
The automaker has also faced accusations from politicians
and industry groups of favouring Chinese or ethnic
Chinese-Malaysian dealers.
All the 47 dealers who left the brand since Geely's entry
are Malays, and the number of Malay dealers has fallen to 32%
from 42% before the Chinese investment, the trade and industry
minister told parliament last month.
Many left as they were unable meet Proton's demand of
investing around $1 million to upgrade their sales-only centres
to offer aftermarket services, said the Malaysian Association of
Malay Vehicle Importers and Traders.
"It was a culture shock," said Nik Izani Nik Ibrahim, deputy
president of the association, adding that most dealers were
losing money before Geely's entry.
Li denied that there had been any discrimination, saying
decisions were driven by business logic.
He said nearly a dozen Malaysian ministers had raised the
concerns of Malay dealers in his first year but that those
worries had eased now.
The automaker has since changed its strategy for dealership,
allowing some basic sales-only centres to continue, dealers and
company officials said.
Proton, launched in 1983, was Malaysia's market leader in
its early years. Its market share plunged in the last decade,
however, as customers shunned its lower-standard cars and
limited after-sales service, Proton officials have said.
The turnaround under Li has forced Prime Minister Mahathir
Mohamad, a car aficionado, to reverse his initial opposition to
Geely's investment in Proton.
"Now, it's selling 100,000 cars and it's making profit,"
Mahathir, whose fleet of cars now includes a red X70, told
reporters this month.
"Why? Because of management, because of good technology."
($1 = 4.0650 ringgit)
(Additional reporting by Joseph Sipalan in Kuala Lumpur and
Yilei Sun in Beijing; Editing by Pravin Char)
((Krishna.Das@tr.com; +60 18661 7562, +60323338022; Twitter: https://twitter.com/krishnadas56))