Volkswagen Closing In On Proton

Anthony Fontanelle
August 7, 2007

Earlier this year, Europe’s largest automaker has been on Malaysian news. The reason is that the Malaysian government is looking to close a deal with Volkswagen AG that will see the German automaker purchasing majority of the shares in Malaysian automaker Proton.

Considered as the national carmaker of that Asian country, Proton is currently facing financial challenges. In the past, the automaker has been the most popular brand in the mentioned Asian country. With the government on their side, Proton was able to sell their vehicles at a cheaper price than the competition. But for the past years, Proton’s share in the Malaysian auto market has shrunk as other automakers led by Toyota are becoming more and more popular in the country.

To save the company from further loss, the Malaysian government which holds a controlling share in the automaker, decided to sell their share to keep Proton from filing for bankruptcy. Aside from Volkswagen, General Motors is also reportedly interested in the acquisition of the Malaysian automaker. Although the American automaker has expressed its interest in the Asian automaker, the Malaysian government is looking to sell their share to Volkswagen.

The apparent preference of the Malaysian government to Volkswagen is given more credential as Malaysian The Edge newspaper reported that Volkswagen will be examining “certain assets” of Proton. The newspaper reported that the said inspection is expected to take place this month. If this report is indeed true, then it would seem that the Malaysian government and Volkswagen are moving in the right direction with respect to closing a deal concerning Proton.

The Edge reports: “Volkswagen is expected to conduct a due diligence on certain assets of Proton Holdings Bhd sometime this month.”

“It is understood that Proton's senior management has been informed of the exercise and has been instructed to facilitate and accommodate the due diligence as best as it can.”

It has been speculated that if the Malaysian government and the European automaker closed a deal, Proton will be focusing on the domestic market while Volkswagen will be in the international auto market. With Volkswagen’s almost limitless funding, they are expected to pour in money to the struggling Malaysian automaker. In return, Volkswagen will be expanding their presence in the Asian auto market. They will also have the backing of the Malaysian government in the said country’s auto market.

According to reports fro the Malaysian newspaper, the European automaker will have to shell out “a few hundred million ringgit” for 51 percent of the Malaysian automaker. This amount is only expected for the initial capital that Volkswagen will have to pour into Proton. With Volkswagen posting increased sales in Europe and the United States as well as their increasing presence in the growing Asian auto market would mean that the automaker has the financial stability to save Proton in the brink of bankruptcy.

Volkswagen is expected to share assembly facilities with Proton in Malaysia where they can manufacture Volkswagen vehicles and auto parts such as Volkswagen shock absorbers and other suspension system components upon the closing of a deal.

The Edge’s report came after it was announced late last month that Volkswagen and the Malaysian government has held the third rounds of talks concerning the sale of 51 percent of the ailing automaker. Aside from having the backing of the Malaysian government in marketing Volkswagen vehicles in the country, it can also be expected that Volkswagen will widen their offering around the world by marketing Proton vehicles in the global auto market.

Source:  Amazines.com