Media Statement
by Lim Guan Eng

(Petaling Jaya, Saturday):  The 11% or 70 cents drop in the share price of Proton Holdings Bhd  to a 4 year low of RM 5.65 on January 13 2006 is not surprising after Volkswagen (VW) scrapped an alliance or joint-venture plan with Proton to build and sell VW brand cars for the local market. This 11% drop also saw its market capitalization wiped out by RM 384.45 million to RM 3.1 billion (Proton has a paid-up share capital of 549.21 million)

In view of such massive losses to the market capitalization of Proton, Prime Minister Datuk Seri Abdullah Ahmad Badawi is correct to demand that the Proton senior management fully explains VW’s decision to scrap the plans for strategic collaboration with Proton Holdings Bhd. DAP considers its unacceptable and irresponsible for Proton to be completely unaware and even surprised by VW's decision to scrap their proposed collaboration to build and sell VW brand cars.

For Proton to be completely unaware of VW’s intention to abort the deal and only know about it in the press highlights the dismal public standing and low regard Proton has in the automobile industry. To be treated in such a light and dismissive fashion adds only insult to injury and should serve as a wake-up call that Proton is in a state of crisis.

From a market share of 60 percent in 2002, Proton saw a decline to 48 percent in 2003 and then 44 percent in 2004. With almost non-existent export and totally reliant on a shrinking domestic market, Proton requires immediate attention not only from the management but probably from the Minister of International Trade & Industry Datuk Seri Rafidah Aziz or even the Prime Minister himself.

In a statement to Bursa Malaysia on January 13 2006, Proton claims that Proton was unable to accept VW’s request for control of the national carmaker's facilities and future development as it would have compromised Proton's independence and would be highly inappropriate for Malaysia's national car company. Such explanation is confusing as the reason Proton is seeking co-operation and help from VW is to reverse Proton's reputation for poor quality and a lack of innovation that has resulted in the lack of capability in selling cars internationally and rapidly losing its share of the domestic market. Who wants to invest hundreds of millions of ringgit if Proton does not cede some form of control?

Such lack of confidence in the future prospects of Proton is shared by investment analysts and stockbrokers who are dumping Proton shares unless there can be a white knight to save Proton. If the Proton management continues to be haunted more by the need to salvage national pride and save face rather than seriously address the commercial and financial issues besetting Proton, there is no hope to stop Proton from becoming a continuous drain of resources to our national economy.

The first step to win back confidence is for Proton to demonstrate transparency, open accounting and full accountability. Proton must explain why VW aborted the deal in such a cavalier and insulting fashion publicly. Apart from directing Proton to answer the VW failed alliance, the Prime Minister should direct Proton to respond to Proton’s advisor Tun Dr Mahathir Mohamed and former Proton CEO’s Tengku Tan Sri Mahaleel Tengku Ariff 8 questions on the sale of MV Agusta Motors SpA.for one euro.

Dr Mahathir and Tengku Mahaleel in a joint statement on Jan 3 had questioned the rationale for the sale of Proton's entire 57.75% stake in MV Agusta to GEVI SpA for 1 euro (RM4.50) which was bought for 70 million euros or RM315 million in December 2004.  In fact financial assistance pumped in by Proton to Agusta pushed up the losses to RM 510.24 million as appeared in Proton’s cash flow statement in its 2005 annual report.

To lose up to RM 510.24 million in less than one year has caused anger amongst Malaysians including Mahathri and Mahaleel, who felt their credibility, honesty and intergrity questioned because they supported the purchase of Agusta. For that reason, they posed 8 questions on the sale of Agusta for only 1 euro that must be answered by Proton:-
 

1.      Who offered to sell or who offered to buy at one euro? 

2.      Were there other bidders? 

3.      Was there an attempt to get the buyer to pay a higher price? 

4.      Was there an announcement that M.V. Agusta was up for sale?

5.      If not, did Proton approach only one bidder?

6.      If other bidders were offered, did they reject?

7.      Who in fact made the decision to sell?

8.      Can Proton explain how selling an entity bought at 70 million euros for one euro would not cause Proton to lose money as is claimed?

When announcing the Proton’s net loss of RM154.33 million for its second quarter ended Sept. 30, 2005, Proton chairman Datuk Mohammed Azlan Hashim said on November 29, 2005 that MV Agusta’s debts and accumulated losses had significantly affected Proton’s finances since it took over the unit in December 2004.

Dr Mahathir and Tengku Mahaleel queried whether it was Agusta's loans that resulted in Proton posting a net loss of RM154.3 million for its second quarter ended Sept. 30, 2005.

Proton had made a provision of RM160.7 million for that quarter, out of which RM90 million was from the Italian motorcycle unit. Both had suggested that the discounts given to buyers of the 54,000 Proton cars in the three months could have cost Proton an estimated RM108 million, which was never answered by Proton.

As Khazanah Malaysia, the Malaysian government's investment arm, holds about 38 percent of Proton and Malaysian investors are the majority shareholders, public interest requires an answer. Proton has an obligation to answer all the queries posed on the aborted deal by VW and the 8 questions by Mahathir and Mahaleel why a RM 510 million investment in Agusta (RM 315 million purchase price and the remainder financial assistance) became zero in less than a year.

(14/01/2006)