MALAYSIA’S Proton Holdings Berhad is close to being part of PSA Group – the soon to be new owner of Opel-Vauxhall – after previous suitor, Volvo’s parent Zhejiang Geely Holdings Group of China, today abruptly backed out of the race to own a majority share in the embattled car-maker.

PSA is on record as stating it is in negotiations with Proton but would not comment on details.

Geely, the front runner up to today’s news, backpedaled on its expected bid in an announcement by its president, An Conghui, in the South China Morning Post that said it would not go ahead with the bid.

It is believed the cold feet came from Geely’s frustration with Proton’s changing sale position, although some analysts thought this could be a tactical ploy by Geely to accelerate Proton’s decision.

Geely can well afford Proton. The Chinese giant this week reported a rise in net profit of RMB5.1 billion ($A1 billion) for 2016, up 126.1 per cent. Revenue was up 78 per cent to RMB53.7 billion ($A10.2 billion).

The prize is a foothold in South-East Asia and direct access to booming car sales in a region with 600 million people with increasing personal wealth and a demand for personal mobility.

Proton is the only car-maker in the 10-member Association of Southeast Asian Nations (ASEAN) that has a complete vertical integration of the automotive industry, carrying out its own research and development, design, manufacture, distribution and sales. It is also a strong exporter to markets including, until recently, Australia.

The appeal to PSA – and perhaps still for Geely – is that Proton can become an instant manufacturing and sales outlet within an expanding economic region.

Proton has two manufacturing plants – Shah Alam and Tanjung Malim – which have a combined capacity of up to 400,000 cars a year.

Proton Preve GXR

Building a greenfields operation in Indonesia or Cambodia is predicted to cost more than $A3 billion and take up to five years to complete.

A new-car factory would also require the training of a workforce, infrastructure of roads and ports for exports, and a distribution chain of sales agents and service centres.

Proton is also attractive for another reason: It has more than 8 billion ringgit ($A2.3 billion) worth of tax credits.

The credits are the result of billions of dollars in losses accrued by the company. These could be used to write off future tax liabilities.

The very reason Proton is seeking a partner and why it faced insolvency is now one of the most attractive features for a foreign investor.

It also received a 1.5 billion ringgit ($A440 million) loan from the Malaysian government in mid-2016 that carried conditions including it form an alliance with a foreign car company and announce its partner in early 2017.

Proton has been the subject of takeover rumours since the Malaysian government sold its controlling stake in 2012.

In September 2015,  Malaysia’s trade and industry minister Ong Ka Chuan stated that Proton and Geely should consider a joint venture that allowed Proton access to Geely’s research and development facilities.

This year, Geely was announced by Proton owner DRB-Hicom as the prefered partner, immediately pushing DRB-Hicom’s share price to a three-month high.

It was the first time the offer had changed from an ownership position to a 51 per cent share.

But Geely, which also owns Volvo Cars and has seen its stock appreciate more than 260 per cent in the past 12 months on strong growth in China, said it was no longer interested in the Malaysian company.

An Conghui, president of Geely, reportedly told Hong Kong-based South China Morning Post his company would not follow up on its initial bid to acquire Proton.

Indications that Geely, which owns Sweden’s Volvo Cars, was getting cold feet emerged last month when company chairman Li Shufu revealed his frustration at Proton parent company DRB-Hicom’s “constantly changing position” regarding future control of Proton.

Proton Suprima S

Last year it recorded a 46 per cent rise in domestic sales to 778,000 units.

Outside of Volvo, Geely’s global presence is very limited. Proton would provide Geely with significant production capacity and a base in South-East Asia to expand beyond the region.

Proton could be offered vital, international-standard engines and have access to Geely’s new small-car models based on the CMA platform, as well as a trickle down from Volvo’s safety technologies.

Through Proton, Geely would also gain Group Lotus to give it access to advanced chassis engineering.

DRB-Hicom was searching for a foreign partner for Proton in the wake of poor sales both in its home market and abroad.

It was also lagging in research and development skills and funds, leading to the inability of the company to provide engines that met Australia’s latest emission regulations.

Proton has ceased importing its two models – the Suprima and the Exora – into the Australian market because they do not meet the emission standards.

Cars on sale in Australia were made prior to the October 2016 date for the new standards.

Proton’s sales now represent 14 per cent of its domestic market compared with the mid-1990s when it had a 60 per cent stake in the Malaysian market and annual production of 215,000 cars.

In 2016, Proton sales in Malaysia dropped to 72,290 units – down almost 30 per cent on 2015 – and global sales were about 80,000 cars.

The other home-grown car-maker, Perodua, had 207,110 sales for 40.3 per cent domestic market share and Honda – which assembles cars in Malaysia – had sales of 91,830 units representing a 17.8 per cent share.

Proton through the ages

PROTON (for Perusahaan Otomobil Nasional) started in 1983 as a fully government owned enterprise and built a Mitsubishi Lancer four-door sedan with a 1.3-litre Mitsubishi-supplied engine and rebadged as the Proton Saga.

It introduced a hatchback variant in 1987 with a 1.5-litre Mitsubishi engine. In March 1989 it entered the UK market and in the early 1990s began selling in Europe and the Middle East.

Proton remained in an alliance with Mitsubishi until 1996 when it formed a joint venture with PSA Peugeot Citroen and used the Citroen AX as the basis for its new small car, the Tiara. The venture only lasted a year.

Proton gained global attention when it bought 80 per cent of Lotus Group International in 1996, lifting it to 100 per cent in 2003. Lotus was integral in the development of the Satria GTI, regarded as Malaysia’s best-ever car.

Proton made its first wholly in-house designed car, the Waja, in 2000 and followed up with the Jumbuck – a small ute that was the only model to have more success outside Malaysia than within – and the Gen-2 model in 2004 that was the first to use an in-house engine, departing from its 21-year reliance on Mitsubishi for drivetrains.

It bought a 57.75 per cent stake in specialist Italian motorcycle manufacturer MV Agusta for about $A100 million in July 2004 and sold it for $A2 (yes, $A2) in December 2005, though the buyer assumed the motorcycle company’s $A170 million debt carried over from MV Agusta.

Proton continued to introduce new models, including the seven-seat Exora, and in December 2008 resumed its collaboration with Mitsubishi, leading to the Inspira in 2010.

Proton continued to introduce new models, including the seven-seat Exora, and in December 2008 resumed its collaboration with Mitsubishi, leading to the Inspira in 2010.

It also built its first turbocharged engine in 2010 and in 2012, after being sold by the Malaysian government and bought by DRB-Hicom in 2012, launched the Preve sedan (2012), Suprima S hatchback (2013), Perdana (2013) and Iriz light-car hatchback (2014).

By Neil Dowling