China’s Geely to take over Proton and Lotus

Geely takes control of Proton.

This afternoon, the automotive grapevine has been veritably buzzing in Malaysia, with the news that the Chinese auto manufacturer has been the successful of the two bidders to take over Malaysia’s ailing national car manufacturer, Proton, from DRB-Hicom. Geely, who also owns Sweden’s Volvo Group and the London Taxi Company, is said to have taken a 49.9% share in the Malaysian company.

Born in 1983, a brainchild of former Prime Minister Mahathir, the Proton group has been flagging of late, after poor quality issues dogged the company and the competition gave them serious competition on pricing. Last year, the Malaysian government bailed them out with about US$338 million, and just this week, a further similar-sized bail-out was needed just so the ailing manufacturer could service their debts. Read: Proton gets more government aid.

A big part of the deal will see Geely take control of Proton's Norwich-based subsidiary and legendary sports car manufacturer, Lotus, with a stake that could be as high as 75%. Lotus has in all fairness been a bit of a millstone around the neck of Proton, having lost some GBP27.6 million last year.  However, Lotus is the market leader in the application of lightweight technologies, which is something that Geely wants to apply across its range of vehicles to help it meet new and very stringent emissions targets in China.

Geely is reportedly hoping to break into the right-hand-drive market in South East Asia and has big plans to use the rather under-utilised Proton plant to make its cars in right-drive format, something they only do in LHD in China. Proton, on the other hand, is looking to expand into international markets amid the flagging demand for its products at home, so it could well be a win-win solution for Proton.

PSA, the owner of Peugeot and Citroen, was also in the running to win a two-way race with Geely to take a controlling share in Proton, and it must have thought that it was going to emerge victorious after Geely announced earlier this year that it was going to pull out of the race. The deal is subject to due diligence and some final negotiations, but the Proton shares have been suspended from the KL Stock Exchange. But for now, it does appear that Geely has beaten Peugeot to the punch.