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Breaching The Great Wall

Written by Yamin Vong. Published on April 30, 2012 11:18 am ,

Syed Zainal escorted by Rachel Pang, the daughter of the owner of Youngman.

Many Malaysians ask about what will happen to Proton now that it’s under the DRB-Hicom group. It is very clear.

The DRB-Hicom group is currently controlled by a group of hard-headed businessmen and with their hands on such an asset like Proton, an independent carmaker that can design and make its own cars from the ground up, the group can do wonders if it can harness the hungry demand of the China market.

This is not so far-fetched because the first steps to the China market were started more than a decade ago by former Proton CEO, Tan Sri Tengku Mahaleel Tengku Ariff.

We saw the scenario being played out further at the AutoChina2012 Beijing on Monday where Datuk Syed Zainal Abidin Syed Mohamed Tahir, the current Proton managing director, was checking out the T5 SUV at the Engineered by Lotus booth.

The T5 is the fruits of Proton-Lotus engineering’s partnership with Youngman, a family-owned company based in Zhejiang province, which has now rebranded itself as “Engineered by Lotus”. One doesn’t see the Youngman brand – it’s now “Engineered by Lotus” and the only carryover from the past is the logo of a raging bull.

There, basking in the bright lights of the show was the T5, one of the most beautiful cars at the show. And this is saying more than a thing or two because this is AutoChina2012 in Beijing, the capital of the world’s biggest car market.

There were 1,125 cars on show, including about 90 world debuts from carmakers in China and another 34 new models from overseas carmakers.

Engineered by Lotus Engineering, a Proton subsidiary, the T5 SUV shares the Gen-2 platform but is stretched. It will use engines from Proton’s CPS upwards and will be priced in the RMB 100,000-150,000 range (about RM50,000-RM75,000) to be competitive. Production is expected to start next year.

Technically, it’s possible for a right-hand drive version to be designed and the model sold worldwide including, of course, Malaysia.

This leads us to the second most frequently question. If Proton has a joint venture with a foreign brand, let’s say Volkswagen, wouldn’t it lose its identity as a Malaysian car?

This is an easy question because as things are moving in the world car industry, companies are buying stakes in each other’s equity and sharing technology and platforms.

Denza. for instance, is the name of a prototype car that has been jointly developed by Germany’s Daimler and China’s BYD, a manufacturer of cars, including electric cars, which has its roots in making batteries for mobile devices. Indeed, it is the world’s largest battery maker.

France’s Peugeot 308 turbo and BMW’s Mini share the 1.6 turbo engine where one company makes the cylinder head and the other company makes the engine block. The name of the game in the world car industry is more and more about minimising costs by increasing volumes.

At the end of the day, it’s not whether Proton is a Malaysian car. It’s whether Proton can be a profitable venture in the long term and add value to Malaysia as an employer and an earner of foreign exchange.

China’s biggest carmaker, Shanghai Volkswagen Co Ltd, is a joint venture between SAIC and VW. This was China’s first joint-venture with a Western carmaker and to keep VW on its toes, Shanghai was allowed to form a second JV car company, the Shanghai General Motors Co Ltd.

The floodgates were opened and as today, 22 years after the first AutoChina was held, China has become the world’s largest car market for three consecutive years with 18.5 million units sold in 2011.

It’s far easier for Proton to have a joint venture with a China car company like Youngman because the decision-making process is more direct than a German company like VW, which is Europe’s largest car maker.

These types of multinational companies have evolved through more than a century, for instance Daimler-Benz is a 126 year old company, and it has grown its corporate governance procedures and the delegation of authority guidelines into documents that, piled on each other, are thicker than a Bible.

There are of course obstacles to Proton entering China. Many of them have been resolved or are being resolved including the slow payment for work done by Lotus Engineering.

There are also quality issues. This is said to have delayed the launch of the T5 for two years.

There is also the question of whether Youngman is obliged to, or wants to, share its T5 model with Proton because Youngman has purchased the rights to the Gen-2 drawings. The commercial terms of this agreement might include the first rights of refusal to Proton.

Tengku Mahaleel, the former Proton CEO, must be credited for Proton’s first approach to China’s car market. This led to a partnership with Goldstar and the concept was that Goldstar would assemble LHD Proton cars for sale in China thus providing Proton with the economies of scale – whether for CKD kits or components – that a carmaker needs to keep costs competitive.

This partnership didn’t evolve for various reasons, including Tengku Mahaleel’s departure from Proton in 2005.

When Syed Zainal took over the reins, he resumed the foray into China and the eventual partnership with Youngman. And in China where almost everything is possible, where there is more than one look-alike of iconic cars like the Hummer and Rolls-Royce Phantom, Youngman knows the value of prestige and now brands itself as “Engineered by Lotus”.

It’s this kind of dynamism that makes the China car market the most competitive in the world with a dog-eat-dog ruthlessness that has brand managers with a Western orthodoxy shuddering.

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Little Greenoranges

There are already a handful of Malaysian companies seeking partnerships in China.

Greenoranges Sdn Bhd has a tie up with Great Wall, China’s second largest exporter of cars.

“Great Wall is also China’s biggest SUV and pick-up manufacturer and has held this position for nine and 14 years respectively,” said its manager in charge of Malaysia, Jacky Tien.

Greenoranges might seem an odd name for a car company but in fact, its owners have a deeper knowledge of the China car market than most industry players in Malaysia.

This is because they had an early start. As early as 1996, the late Tan Sri SM Nasimuddin SM Amin had ventured to China together with his brother, Datuk Hj SM Shalahuddin SM Amin. They spent torturous weeks in China touching base with the various car makers including Great Wall.

One of the things they came back with was the Hafei Lobo, a B-segment small passenger car rebadged in Malaysia as the Sutera.

They lost money on that and many of the senior managers in the Naza group swore never to get involved with China cars again.

About two years ago, Great Wall re-established ties with Datuk Haji, as he’s better known as in the company, and they subsequently signed him on to sell the Haval 5, an SUV, and the Wingle, a pick-up. Greenoranges was formed in 2009 to manage the franchise.

A top seller in China where the market is booming and reached 1.8 million units last year, the Haval won the SUV of the Year award in the 2011 NST-Maybank Car of the Year awards.

“Great Wall is an independent, family-owned company and the owner was formerly a farmer who liked to tinker with and improve his farm machines,” Shalahuddin told CBT on the sidelines of Auto China 2012, Beijing.

“He’s about 60-plus now and his philosophy is focused on quality before sales. Great Wall’s production reached 800,000 units last year and a new plant is opening this year to increase the supply.

“As a company, Great Wall isn’t hurrying us to buy more cars from them. They want us to get our footing. In fact, we won the “best dealer network improvement” for 2011.

“We plan to bring in more units for sale this year and perhaps the new Haval H7 next year,” he said.

# Our visit to AutoChina together with 16 journalists was hosted by Greenoranges and Great Wall Motors Co Ltd.

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