Proton-Perodua Merger

On the talks regarding Proton-Perodua merger. I am not sure why or who or which publication first mooted this topic, though I remember reading this in The Star Bizweek last year. The bigger question is why were the media giving so much attention to this topic, which in my personal opinion is obviously never going to materialize, for some very obvious reason which I am still surprised no one brought it up. Is this the result of another round of speculative talks to push up stock prices before the Raya holiday season?

Firstly, Perodua is merely an outpost of Toyota's kei car subsidiary; Daihatsu. Forget about what the PR machinery of Perodua or even UMNO politicians tell you, Perodua does not own any of the intellectual property in its cars and has to play a subservient role to its Japanese masters of Daihatsu. The company can't even export Perodua badged cars without approval from Osaka, Daihatsu's nerve center. Perodua owns the localized design of its vehicles no more than the Thais at Toyota Motor Thailand own the IP rights to the Toyota Hilux Space Cab variant, which was entirely developed in Thailand by Thai engineers.

Proton meanwhile, have a model-model or ad-hoc collaboration with its technical partners at Mitsubishi. Although Proton owns far more IP rights to its vehicles than Perodua, the future direction of Proton, points to greater cooperation with Mitsubishi. Mitsubishi have a slightly different philosophy than its other fellow countrymen. Being much smaller than its other bigger Japanese motor industry competitors, Mitsubishi earns a portion of its earnings from licensing fees to upcoming companies in the developing countries, including Malaysia's Proton, China's Chery, even the early days of Hyundai cars was built with Mitsubishi's technical assistance. Previously it also had alliances with Volvo and currently still maintains a JV with the French PSA Peugeot Citroen.

It is glaringly obvious that neither Proton and Perodua can survive without a technical partner to provide them either with economy of scale in product development and purchasing or outright technical know-how assistance. It is one thing to design an engine or a transmission etc etc. Managing a factory and the entire supply chain management to manufacture it with consistent quality is an entirely different matter. It makes no sense for Proton and Perodua to come together, as neither of them have anything to bring to the negotiation table that is of particularly important / critical in sustaining a car company. The proponents of the merger from the government points to economy of scale, but what's the point when they lack the necessary funds nor technical knowledge to continously sustain a series of new model development programme.

And what makes Mahatir or even proponents of the merger from the ruling government to think that the merger arrangements will go down well with either Mitsubishi or Daihatsu? Obviously neither Mitsubishi nor Daihatsu is comfortable with providing their intellectual properties to a third party that have an existing partnership with another car company. And please don't bring in the example of China. SAIC has partnership with both GM and VW, but that is an entirely different ball game, given the size and promises of the Chinese car market, which is now the largest in the world. Plus, car makers have little choice and the Chinese economy is a centrally planned one. The Chinese rule book requires foreign companies to partner with a local Chinese partner, in the interest of developing domestic Chinese industry. And VW have had a number of skirmishes with its Chinese partners regarding accusation of IP rights theft. Most of the big car names in China maintain relationship with more than 1 local partner. Toyota counts FAW and Guangzhou Automobile Industry Group Co while VW has both Shanghai Automobile Industry Co. (SAIC) and First Automobile Works (FAW). Anyway, that's another story.

So we now know that neither Proton and Perodua can survive without a technical partner. And no technical partner will be comfortable in allowing their intellectual properties to be compromised in any way. So why does the media bother to dwell on this again? And remember another case study, even the Germans of BMW and Mercedes could not pull off a merger, a proposal mooted by the German banks during last year's credit crunch. It reminds us of a period of time right after World War II when a struggling BMW almost became a subsidiary of Daimler. The culture of the two companies is too different. For decades their staffs have been thought to compete with each other, how is it possible for them to reconcile this? As expected, negotiations for a BMW-Daimler merger came to a halt almost as soon as it started, settling for a rather vague "joint procurement". There is no way a 1-series can share a platform with an A-class.