Investors encourage Proton to sell Lotus

[Exploded]

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Lotus Sale Seen 30 Years After James Bond Let Go Along With Profits: Cars

James Bond stopped using Lotus as his vehicle of choice to fight villains 30 years ago. Investors say Malaysia’s Proton Holdings Bhd. (PROH) should follow suit in abandoning the sports-car maker.

Proton, the Malaysian maker of sedans and taxis that bought control of Lotus in 1996, hasn’t made any profit from the British unit for 15 years and probably won’t at least until 2014. Now that Proton itself may be divested by its state-run parent, investors such as Gan Eng Peng say Lotus Group International Ltd. is ripe for a sale.

“It will make sense for them to sell it,” said Gan, who helps oversee about $3.6 billion as head of equities at HwangDBS Investment Management Bhd. in Kuala Lumpur. “Proton and Lotus are not a good fit. They are in different market segments, both in terms of geography and product.”

Lotus, which has struggled to compete against Porsche AG (PAH3) and Ferrari SpA in Europe, has hung on to relevance in the auto industry partly because of its decades-long expertise in designing lightweight frames. Still, the company may need the backing of a carmaker more global than Proton to survive in an industry where carmakers such as Saab Automobile are filing for bankruptcy, according to Gan.

Interest in Lotus

Lotus’s sale has been the subject of speculation before. Shanghai Automotive Industry Corp. this month denied an Edge newspaper report that said China’s largest carmaker is interested in Lotus. Two months ago, Proton denied a report by the Star newspaper that it was selling its Lotus stake to Luxembourg-based Genii Capital.

Lotus Chief Executive Officer Dany Taner Bahar, formerly a Ferrari executive, said he’s confident he can make the company break even by 2014 as long as he has the financial backing.

“The only thing we can do is show the current owners, or the new owners, that we are absolutely in line with the business plan that we have presented,” Bahar, who’s based in Norfolk, U.K., said in an interview last week. “Without the funding support and the guarantees given by the Proton group, we would not survive, end of story.”

Bahar said Lotus, whose cars were featured in the James Bond movies “The Spy Who Loved Me” in 1977 and “For Your Eyes Only” in 1981, will continue to turn to its engineering strengths to stay competitive.

Lightweight Frames

Phil Gott, an IHS Automotive analyst specializing in powertrain research, agrees that Lotus technology is excellent. Expertise in making lightweight frames, a defining area of strength since its founding in 1952 by British inventor Colin Chapman, has allowed Lotus designs to be a popular option for electric cars, Gott said.

Tesla Motors Inc. (TSLA) has relied on Lotus chassis designs since 2008 for its $109,000 Roadster sports car. Then-Chrysler LLC had also planned to contract Lotus to produce electric vehicles before the Auburn Hills, Michigan-based company filed for bankruptcy in 2009, emerging as Chrysler Group LLC.

The Lotus Elise weighs 2,010 pounds (912 kilograms), making it the lightest performance car sold in the U.S., according to Santa Monica, California-based Edmunds.com. The 2012 Porsche Cayman is 2,932 pounds while the Mazda (7261) MX-5 Miata sports convertible is 2,480, according to the website.

“One of Lotus’ key attributes, part of the DNA, is to go the extreme in achieving the most intelligent and clever technological engineering,” Bahar said.

Lotus DNA

Lotus’s DNA may share few similarities with that of its Malaysian owner. While Lotus makes sports cars that are sold for as much as 513,000 ringgit ($163,000) in Malaysia, Proton sells hatchbacks for as low as 34,000 ringgit. Before Proton, Lotus’s owners included the former General Motors Corp. (GM), which later emerged from bankruptcy as General Motors Co., and Romano Artioli’s Bugatti International.

Proton’s stock has gained 50 percent in Kuala Lumpur trading this month as speculation on its sale heated up. State- owned Khazanah Nasional Bhd., which holds a 43 percent stake, has since confirmed it received offers. Khazanah officials have declined to comment on Proton’s sale beyond saying it received proposals of interest. Sime Darby Motors, Naza Group, Hyundai- Berjaya Sdn., DRB-Hicom Bhd. (DRB) and UMW Holdings Bhd. (UMWH) are candidates, the Edge reported Dec. 3. Sime and UMW have said they aren’t interested.

Former Malaysian Prime Minister Mahathir Mohamad, who founded Proton in 1983, said Dec. 13 that billionaire Syed Mokhtar Al-Bukhary’s DRB-Hicom, an auto assembler, is the best candidate to buy the government stake and that Proton shouldn’t be sold to a foreign company. DRB-Hicom Managing Director Mohd Khamil Jamil wasn’t available for comment because he’s on leave, said his secretary.

National Carmaker

For Proton, whose profit tumbled 76 percent in the latest quarter, unloading the U.K. unit may give it room to invest in production facilities as Malaysia’s national carmaker faces mounting domestic competition from Toyota Motor Corp. (7203) and Perusahaan Otomobil Kedua Sdn Bhd.

Lotus needs about 2.4 billion ringgit in order to help it return to profit, according to OSK Holdings Bhd. (OSK) estimates. The brand may be worth about 1 billion ringgit, or about triple its current value, once it’s profitable, according to Ahmad Maghfur Usman, an OSK analyst.

For that to happen, Lotus will have to sell 8,000 vehicles a year, he said. The carmaker sold 1,985 units for the year ended March 31, according to its annual report. That compares with Ferrari, whose chairman said in September will probably post record sales of 7,000 cars this year.

Those numbers may be difficult to reach under current ownership.

“Proton is better off without Lotus,” said Alexander Chia, a Kuala Lumpur-based analyst at RHB Capital. “There are no product synergies.”

To contact the reporters on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Steve Rothwell in London at srothwell@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Edited December 29, 2011 by Exploded

[ramjet]

With such a big story and as many opinions as there are in the above article, you would think that someone would have approached Proton PR for comment and not just a comment from Dany Bahar?

Until someone from proton says something to either confirm or deny the above, it is just simply opinion from a bunch of investment guys. (bean counters?)

[obione]

I thought the response from Dany Bahar was quite telling - it would appear to be a bit more than just rumours, whatever the truth.

[Gus82]

I saw this piece mildly rewritten but becoming ever more sensationalist as its was reproduced on several sites. I think there is probably something in the idea that they will want to sell at some stage, however why now?

They have put in investment, but there are only early, limited signs that the company will return to profit in the way that has been predicted. No one will know for sure until the first couple of cars (Esprit and Elite) are on sale. Therefore if they sell now it will still be at a knockdown price and they will probably loose even more money than they would have done if they cut their losses two years ago.

The only game changer could be if Proton itself is to be sold. There has been rumors for a couple of years now that VW want Proton for their production plants in Asia, but probably not the Proton brand or product range. The collapse of the Suzuki partnership may make this a greater priority again and the Malaysian government may be made an offer they can't refuse financially and in terms of the jobs one of the worlds biggest and most profitable car makers could bring to the region. In such circumstances with an election looming selling off Lotus might be attractive. VW are unlikely to be interested, so to save face selling Lotus in stages might be the best way forward so some money can be recouped now and more when the restructuring reaches its conclusion in 2014, at which point the remaining shares will be worth more too.

Genii therefore may be in the running for a stake after all, and it follows the Proton line that they would consider new outside investment for the business.

[simonb]

I read the story as "Proton for sale", with discussion as t owhether Lotus should be part of the same package.

As there is not that much synergy between Lotus & Proton (was there with GM or Bugatti?) those likely to buy Proton may not want a cash hungry sports car firm and a specialist engineering company.

I personally hope it all holds together until Bahars planned cars get to market, I do now see where Lotus will end up if they take a different tack now

[molemot]

How about if we, the Forum, wait until the trainwreck is over and then bid for Lotus at the resulting "garage sale"? Surely there's enough disparate talent available to sort it out and get back to Chapman's original concepts.....

[DanR]

Has the Lotus car making business ever been profitable? And not in terms of petty cash but major profitability.

I've been under the impression Lotus profits have come from their engineering and consultancy work, with the cars as a flag waving non-profitable exercise.

[jonwat]

Report in Autocar that Proton stock is 50% up due because control of the car-maker would be sold.

[Bibs]

Their stock was up long before any rumours about Lotus being sold. Started going up in mid-Nov...

http://investing.businessweek.com/research/stocks/charts/charts.asp?ticker=PROH:MK

[Nelly]

I agree that Proton and Lotus are not exactly a great fit, and Proton don't strike you as a car maker with either the resource, expertise or experience to pull this off.

On the one hand getting in with a big car maker doesn't always work - GM have ruined Saab, BMW had their Rover disaster and Ford didn't exactly make a success of Aston Martin, Jaguar or Land Rover.

VW seem to be the only ones who have got it right with Bentley, Lamborghini and Bugatti (I am not including Ferarri with Fiat as I think they are big enough to support themselves).

On the other hand, it looks to me as though joint investment, parts sharing etc is the only way car companies can move forward these days - especially niche car makers. I am sort of starting to think its inevitable they will end up in the hands of someone bigger.

Any preference for new owners?

[rmorrow]

I'm not sure big car makers are the way to go - McLaren haven't gone this way and are just relying on pots of Middle East cash. If the parts sourcing has all been done for the new Lotus models, then there's no benefit in having access to big parts bins or 'buying power'.

VW didn't get it all their own way with Bentley - remember the Rolls Royce naming rights saga??!!

[NedaSay]

So is there anybody here willing to pony up some cash and make an offer to proton for our beloved company?

[rogerch]

[alan]

So is there anybody here willing to pony up some cash and make an offer to proton for our beloved company?

About 10K per member would make an interesting offer.

[simonb]

Then we could all run it by committee, would be great, we all agree & all have the same vision

[NedaSay]

About 10K per member would make an interesting offer.

Are we talking euro, pound or dollar! This is getting dangerous cause i'd be kind of in on the deal for sure and after over a year of travelling around i'm short on cash but if all TLFers are in...! How much could we pony up?! Now this is just crazy talk... or is it!?! Mind you crazier things have happened!

[rogerch]

"Now this is just crazy talk... or is it!?"

This is crazy talk, "managment by committe"=DEATH, possibly even faster than the current management can achieve it.

Personally I wouldn't envest 2&6 in the current management structure, so that would have to go, and replaced by what/who.

In the mean time the clock is ticking, suppliers, employees etc, to be paid.

[Bibs]

*Invest.

What's your beef with Claudio Berro, Wolf Zimmermann, Donato Coco, Bob Lutz, Tom Purves, Karl Kalbfell, Gordon Murray et al?

[rogerch]

The current revenue shortfall.

[Iconic Ride]

Here's how this is going down you spineless bottom feeders. The Gekko plan does not involve a pause for lunch, tea, or crumpets. We move fast and we hit hard. Lopez over at Genii Capital makes Proton an offer it can't refuse, using laundered Russian oil money from Putin's connections with the Ozero cooperative. Lopez immediately liquidates all Proton's assets, selling its aluminum futures to Fernandes for a tidy profit, with the understanding that they be used to cast landing gear parts. The cash from Proton's liquidation is wired to a previously established Swiss bank account, FBO Group Lotus. Group then uses the proceeds to purchase Ferrari, which in turn is turned over to Lopez and LRGP, aka Lotus F1. Lopez performs a buyback of Group, using arcane derivative leveraging methodologies and a bit of smoke and mirrors techniques borrowed from Draghi over at the CEB. Group is now sufficiently funded on paper to build whatever the hell they wish, carte blanche. Bahar is so happy to see his fellow cronies from Ferrari again that he voluntarily resigns as CEO, and applies for test driver status at Lotus F1, fulfilling a lifelong boyhood dream. Kimi resists mightily, but is overruled. Putin loses the March elections due to increasingly dissatisfied constituents, and finagles his way into the Group Lotus CEO position, assuring a vigorous marketing program based on historical time tested coercion procedures that served him well in previous endeavours. Group becomes enormously profitable under a new "5 year plan."

[rogerch]

It's a plan.

[NedaSay]

Yup it's a plan! And we are all going to jail ... I meant hell!

Edited December 31, 2011 by NedaSay

[Guest surferphil]

Putin baby he's our man!

The Germans couldn't handle Putin in Europe, although they would probably be to crippled by the Mediterranean Euro deficit to put up much of a struggle. I bet the first thing he does is make light weight tanks from extruded aluminium and take Russia back. Although my dad would approve of an Anglo/Russian endeavour, I feel any 'plan' to 'control' anything in Putin's hand would be mere wishful thinking. Although Lotus do need a good dictator!

The trouble is they got it all the wrong way round. Instead of Lotus using cheap Japanese parts Proton should use Lotus parts and in mass producing them make them cheaper for Lotus to return to profit!

Lotus should buy Proton and use them as a badge to sell mass produced hot hatches, city cars, and everything else to rival the Germans/Japanese.

Lotus-Proton i4, V6 and V8 engines VVA chassis, lightweight components, quality interiors it should be a match made in heaven!

[richardvg]

as was said earlier on..............the two cars have no synergy !

[Guest surferphil]

I completely disagree.

They should have a brilliant partnership considering the engines, gearboxes, switchgear, and running gear parts Lotus have been using for the past 25 years.

Proton was set up by Mitsubishi as a manufacturing plant, using Mitsubishi engineered parts, when Mitsubishi sold their share in Proton, Proton had lotus to do their engineering and R&D for them.

Lotus was also a door into the European market.

It should have been a perfect match.