General Motors in Talks on Proton, Malaysia Says

Jan. 15 (Bloomberg) -- General Motors Corp., the world's largest automaker, may buy a stake in Proton Holdings Bhd., the Malaysian state-owned carmaker that's seeking a partner to stem losses, a government official said.

Detroit-based GM has ``shown interest'' in Proton, Malaysia Second Finance Minister Nor Mohamed Yakcop told reporters today. Separate talks with Volkswagen AG and PSA Peugeot Citroen are continuing, which could also lead to the sale of a stake in the state-controlled carmaker, he said.

Proton ended a 21-year alliance with Japan's Mitsubishi Motors Corp. in March 2004 and is seeking a new partner to revive revenue, which fell to the lowest in at least seven years in the quarter ended Sept. 30. GM is expanding in China, India and other Asian emerging markets, as sales slump at home.

``GM can use Malaysia as an Asian platform, and that's very positive for Proton,'' said Nik Azhar Abdullah, who oversees about $684 million at Avenue Asset Management Sdn. in Kuala Lumpur. ``If you have three big names who want to get involved with Proton, it's very good.''

Proton shares jumped 35 sen, or 5.5 percent, to 6.75 ringgit in Kuala Lumpur, giving the company a market value of 3.71 billion ringgit ($1.1 billion). GM stock closed down 0.4 percent at $30.75 on Jan. 12 in New York.

Malaysia's state investment arm Khazanah Nasional Bhd. owns 43 percent of Proton. GM may offer as much as 10 ringgit for each Proton share, the New Straits Times said on Jan. 13.

``The best partner is not necessarily the one that offers the highest price,'' said Sharifah Farah, an analyst at CIMB Securities Sdn. ``Proton needs a partner that it can work with to achieve its objectives over the next 10 years.''

Previous Talks

Rob Leggat, a Shanghai-based spokesman for General Motors, said by phone that the company has held talks with Proton. He declined to say what was discussed and called the New Straits Times report ``very speculative.'' Faridah Idris, a spokeswoman at Proton, declined to comment.

General Motors said in November 2000 it was in talks with Proton about forming an alliance in Malaysia, Southeast Asia's biggest passenger car market. The discussions didn't produce a partnership.

Proton is worth pursuing because of its share of the local market, said Graeme Maxton, managing director for Asia at Autopolis, an adviser to the Malaysian government. Proton had 24 percent of Malaysia's car market as of Sept. 30, according to the Malaysian Automotive Association.

`Biggest Asset'

``That's about the biggest asset that it has,'' said Maxton. ``It's not big by world standards but it's worth some of the car manufacturers taking an interest in that.''

Still, an alliance may not be enough to save Proton, according to former premier Mahathir Mohamad, who set up the company more than two decades ago. Proton, led by Managing Director Zainal Abidin Syed Mohd Tahir, also needs fresh leadership to return to profit, Mahathir, who formed Proton in 1983 as prime minister, said on Jan. 8.

Proton, which makes the Gen.2 compact car and the Saga, a four-door saloon favored by Malaysian taxi drivers, said in November its loss widened to 250.3 million ringgit in the three months ended Sept. 30 from 154.3 million ringgit a year earlier.

Asian Markets

Asia has become GM's second-largest production base, after North America, and accounts for 20 percent of the company's vehicles, Chief Executive Officer Rick Wagoner said on Jan. 12. GM increasingly will depend on overseas markets to boost its global sales total.

GM's sales increase in markets such as China, where the Buick Excelle is the second-most popular car, contrasts with an 8.8 percent drop in the company's U.S. sales last year.

The U.S.-based carmaker plans to sell more than 1 million vehicles in China by next year at the latest. Its vehicle sales in China rose 32 percent to a record 876,747 vehicles last year.

In India, GM plans to triple its share to 10 percent by the end of the decade. In South Korea, GM completed in October 2002 a $1.17 billion acquisition of factories and other assets from insolvent Daewoo Motor Co. through a joint venture it controls.

The venture, GM Daewoo Auto & Technology Co., took over two of Daewoo Motor's assembly plants in South Korea and one in Vietnam. It later took over a third plant in South Korea.

GM's Woes

Wagoner is under pressure to show improvement in the carmaker's finances after last year rejecting an alliance with Renault SA and Nissan Motor Co. proposed by GM's then largest individual investor, Kirk Kerkorian. The billionaire sold his 9.9 percent stake after the company rejected his plan.

GM has posted more than $13 billion in losses over seven quarters, including more than $3 billion in the first nine months of last year. Its global sales fell about 0.8 percent to about 9.1 million vehicles worldwide last year.

The perceived risk of owning GM bonds has fallen as Wagoner has sold $17 billion of assets over the last 15 months to bolster the company's cash, credit-default swap prices show.

Credit-default swaps based on $10 million of GM bonds fell 1 percent to $367,500 on Jan. 12 in New York, according to CMA Datavision in London. That's down from a high of $1.35 million at the end of 2005, data compiled by Bloomberg show.

Traders use the five-year contracts to bet on a company's ability to repay debt. A drop suggests improving credit quality.

To contact the reporters on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.netAngus Whitley in Kuala Lumpur at awhitley1@bloomberg.net

Proton Generation

First generation Proton Saga, Kuala Lumpur


Proton Saga (Aeroback) (automatic) (first generation, first facelift) (front), Kuala Lumpur.


Proton Saga (first generation) (front), Kuala Lumpur


Proton Saga (re-release; first facelift) (front), Seri Kembangan


Proton Saga (second generation) (front), Serdang

Proton Persona

* Great pricing
* Plenty of equipment
* Spacious interior and big boot
* Lotus-tuned suspension delivers quality ride and handling


* Bad


* Horrible interior plastics
* Some poorly executed ergonomics
* Engine is under-sized for segment and uses 95 RON fuel
* Safety equipment level is behind the times


2 Minute road test (See full review)
Price and equipment

At $16,990, the Persona's price attracts attention. Then there's the equipment list that includes airconditioning, 15-inch alloy wheels, reversing sensors, foglights, power windows and mirrors, remote central locking, an alarm and single-CD audio with steering wheel controls but only a space-saver spare tyre.

The Persona, with its 1.6-litre engine, misses out under the bonnet as popular small car rivals have either 1.8 or 2.0-litre engines. The Persona's Campro engine, as it is known, also runs on more expensive premium unleaded. The five-speed manual gearbox, as tested here, is standard.

Replacing it with a four-speed automatic adds $2000.

The Persona's price pitches it at the bargain basement of the small-car market, lining up against the Thai-built Nissan Tiida ST ($17,990) and the Korean-built Holden Viva ($18,490).

Persona is also cheaper than the $17,990 entry-level Toyota YRS sedan, which is a whole class smaller.
Under the bonnet

A 1.6-litre engine is a performance negative for a small car. But in these days of fuel prices above $1.50 a litre, Proton is invoking the economy argument.

The official claim for the 82 kW/148 Nm engine is 6.6 L/100 km for the manual and 6.7 L/100 km for the auto.

Our result was 8.3 L/100 km and 198g CO2/km, about what you'd expect from a small car with a 1.8 or 2.0-litre engine.

The Persona would benefit from an extra gear, as in fifth gear it buzzes along at a relatively high 2800 rpm.

Proton claims the Persona accelerates from 0-100 km/h in about 12 seconds. It doesn't feel that slow in the real world.

The manual gear change is co-operative and quite snappy. Work the throttle enthusiastically and the Persona will keep up with traffic.

The ambience of the engine is quite pleasant. It is boomy around 4000 rpm and there's some tingling through the pedals close to the engine's red line, but it is mostly composed.
How it drives

The Persona's ride and handling have been fine-tuned with the assistance of sports car marque Lotus, which is now a part of Proton.

The influence of the English chassis expert is obvious. The Persona displays good manners when cruising and trawling the suburbs. In these circumstances its main weaknesses are a limited rear vision while reversing - the parking sensors are much-needed kit - and a large 10.8-metre turning circle.

The Persona drives quietly, rides well, handles with assurance and steers quickly ... up to a point.

Coarse surfaces get the otherwise impressive Goodyear NCT tyres humming, while rough or bumpy roads can generate shake through the steering wheel.

Nevertheless, the driving behaviour of the Persona is one of its most impressive attributes.
Comfort and practicality

Immediate benefits that the Persona has over its hatch-back Gen 2 sibling include more passenger room, a glovebox (the Satria lacks one) and a 430-litre boot space that grows with the split-fold rear seat.

The two cars share a simple instrument panel, the circular theme for audio controls and the way the three dials for the air-conditioning sit vertically on the lower part of the centre stack.

The Persona has adequate storage for cups, mobile phones and more.

Behind the wheel, the driver has to make do with only rake adjustment.

Space in the back, with the front seat occupied, is good enough for a 180-centimetre adult. Wide-opening doors provide easy access.

But the Persona's plastics are so unforgivingly hard that fingers, knuckles and elbows get scraped and bruised. The lid for the centre bin not only inflicts pain but also sits too high so it fouls every gear change. It has to be left flipped up, only to come flopping down during braking.

The driver at times has to reach around the gearshift to adjust the airconditioning dials, and the glovebox falls open without any damping.

Other annoyances included the interior's strong chemical smell and some squeaks and rattles.
Safety

No independent crash-test rating exists for the Persona or its hatchbased sibling, the Gen 2. Safety equipment includes dual front airbags, ABS with EBD and lap-sash seatbelts for all five passengers.

The front belts include pretensioners. The Persona does not have stability control or side and curtain airbags available even as an option, flagging a major safety concern.
Overall verdict

* Three Star


The Persona is unfinished business.

The basic mechanical package, interior space, pricing and equipment level are all appealing or at least satisfactory. But its crude interior detailing, some poor ergonomics and the offensively cheap materials hold it back.

It's not like Proton has to look far up market to see how it should be done - Korean car makers now produce some of the best budget interiors.

Proton has come a long way with the Persona but it still has work to do.