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Tuesday, July 27, 2010

ARTICLE: Analysts play down Perodua-Proton merger

The Star Business, Tuesday July 27, 2010

Analysts play down Perodua-Proton merger


They say a merger will only benefit Proton at the expense of Perodua

KUALA LUMPUR: Perusahaan Otomobil Kedua Sdn Bhd (Perodua) would likely scupper any attempts to merge with Proton Holdings Bhd as there would be little benefit for the second national carmaker to enter that marriage.

Analysts said a merger between the national car companies would benefit Proton and the vendor system more than Perodua, hence creating little or no incentive for Perodua to proceed with the consolidation of the industry.

“On paper it could look beautiful but executing the merger will be very difficult,” said an analyst.
The suggestion that Proton and Perodua should consider a merger was floated after Prime Minister Datuk Seri Najib Tun Razak said at Proton’s 25th anniversary celebration that if overcapacity was an obstacle, auto companies should merge to create a stronger, bigger and more able company.

Proton has since spoken positively about the benefits of a merger with Perodua, with its group managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir saying a merger would enhance economies of scale, reduce costs and help exports.

But Perodua has been coy about the whole process.

Its managing director Aminar Rashid Salleh reportedly said there was little compatibility between both companies as they made different car models. The argument of lowering cost of components and economies of scale from the merger does not, however, gain a lot of traction from analysts.

“The key difference and impediment is that the cars from both Proton and Perodua operate on different platforms,” said an analyst. “That makes a merger irrelevant.”
A merger also would not address the poor export performance by both companies. Analysts said a merger would not be the ideal solution to deal with Proton’s overcapacity issue. An analyst said such a move would only mean transferring the problem to another company.

“Proton has ample capacity to spare as its Tanjung Malim plant has not been fully utilised since it was built,” said an analyst.

“Perodua’s expansion in adding capacity has been prudent and tracks the rise in sales the car company has been etching over the past years.”

According to Malaysian Automotive Association president Datuk Aishah Ahmad, Proton’s Shah Alam plant is operating at 54% of capacity while its factory in Tanjung Malim is functioning at just 42% of capacity. Aishah said UMW Toyota Motor unit Assembly Services Sdn Bhd was operating at 215% production capacity, Honda Malaysia Sdn Bhd at 202%, Nissan vehicle assembler Tan Chong Motor Sdn Bhd at 143%, and Perodua at 164%.

‘’Most plants are operating at more than 100% capacity. If you are already full there’s no need to consolidate,” Aishah said in a report last week.

Analysts concurred, saying that Perodua by itself was reaping the benefits as one of the most profitable auto companies in the country. The only way Perodua would consent to a merger was if it were forced to do so, or offered a deal it could not refuse, said an analyst.

A Proton-Perodua merger would, however, solve a long-standing issue of a foreign partner for the first national car as Perodua lists among its substantial shareholders, Japanese carmakers Toyota and Daihatsu.



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