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Chance of success for the new Proton Zejiang Geely’s partnership?

POSTED BY Yamin Vong ON 06 July 2017

A recent article on the Visual Capitalist website analysed the failure of some historic American car marques.

From Studebaker to Hummer, the fall of these brands were of course due to financial failure and there’s a lesson to be learnt because there were different roads that led to their demise.

Among them was Studebaker that engaged in a price war with GM and Ford, before eventually closing shop in 1953.

Oldsmobile failed because their cars were rebadged copies of other brands. A more recent example of badge engineering failure was Saab after it was acquired by GM.

Hummer, the company that produced military vehicles for the United States, was discontinued due to unsustainable sales volumes. Only 27,500 units were produced in 2008, its last year of operation.

So how will the new partnership between Zhejiang Geely and Proton fare? It’s a whole new world today, one where China is the biggest market for affordable and premium cars.

To put things into context, joint ventures and takeovers are common in the automotive industry. Another Visual Capitalist post in November last year, depicted the entire auto industry being controlled by only 14 companies.

Perodua, for one, is a joint venture between Malaysian parties and the world’s biggest car maker, the Toyota Motor Corporation conglomerate, which includes associate car manufacturers such as, Daihatsu.

Despite some local R&D and reworked minor body styles, Perodua’s top selling Myvi and Axia are essentially re-badged versions of Daihatsu models. Because Daihatsu’s small-sized cars are not sold in Malaysia, there is no possibility of cannibalisation.

Secondly, badge engineering is a screaming success in Malaysia as Perodua saved roughly RM600mil and between three to five years of development work – the approximate cost and development time needed to introduce a new model.

Thirdly, there is economies of scale as the Myvi and Axia share components with Daihatsu models.

These three factors are conversely the reason for Proton’s inability to compete with Perodua.

Fourthly, Toyota and Daihatsu have a wide range of models from which to provide a vehicle suitable for the Malaysian market.

So what are the factors that will determine the success or failure of the new Zhejian Geely-Proton entity?

Market access and cost efficiency or “cost down” are the two most important factors.

Badge engineering and the ability to keep costs down worked for Perodua and it should work for Proton, but there’s a big factor to note – Toyota arguably makes the most reliable vehicles in the world, has a huge variety of models and the best marketing insight to select suitable models that will prove popular.

The after-sales service must also be re-engineered to ensure people’s perception of the brand improves. If customer satisfaction is improved to the stage where Proton achieves a competitive ranking in one of J.D. Power’s customer satisfaction indices, only then is there a higher possibility for a revival of Proton’s fortunes.

Vendors who supply low quality parts are also part of the problem.

Having said that, there is little time to spare because the Renault-Nissan-Mitsubishi alliance is already moving into the Indonesian market and there are plans to expand to other members of the Asean by 2019.

Renault-Nissan Alliance’s chairman and chief executive officer Carlos Ghosn together with Mitsubishi Motors Corporation’s chief executive officer Osamu Masuko, posing next to the new compact MPV.

Renault-Nissan Alliance’s chairman and chief executive officer Carlos Ghosn together with Mitsubishi Motors Corporation’s chief executive officer Osamu Masuko, posing next to the new compact MPV.

About three months ago, chairman and chief executive officer of the Renault-Nissan Alliance Carlos Ghosn together with Indonesian President Joko Widodo and Mitsubishi Motors Corporation chief executive officer Osamu Masuko officiated the launch of the USD565mil (RM2,428mil) Mitsubishi factory in Bekasi, greater Jakarta.

The focus of this plant is to make the new seven-seater compact MPV and reinforce the Japanese automaker’s position in Indonesia and Southeast Asia.

“In 2019, we have the chance to start supplying our new compact MPV to Nissan,” said Osamu in a Japan Times report.

Ghosn confirmed the plant would engage in cross-manufacturing for specific vehicles, including the new compact MPV.

Toyota has already positioned Perodua, its manufacturing associate, to export its small cars in significant quantities to the region.

On the Malaysian front, Proton’s chief executive officer Datuk Ahmad Fuaad Mohd Kenali is determined to move quickly. Speaking on the sidelines of the definitive signing between Proton and Zhejiang Geely, he said the plan was to start producing and selling the Geely Boyue SUV within a year.

And if some other reports are to be believed, the Boyue might be ready for sale even before the end of the year.

What do you think about Proton Zhejiang Geely as a disruptive actor in the Southeast Asian automotive market? What does the partnership need to be successful?

 

Below are the two Visual Capitalist posts mentioned in this article.

http://www.visualcapitalist.com/14-defunct-car-brands-failed/

http://www.visualcapitalist.com/14-companies-control-entire-auto-industry/

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