DRB-Hicom rides on Geely’s Volvo plans
Khairul Khalid 

While all eyes are on DRB-Hicom Bhd’s turnaround plans for Proton this year, its strategic partnership with China’s Zhejiang Geely Holdings Group Co Ltd is expected to have a wider impact on the automotive industry.

The market is abuzz over Geely’s plans to turn DRB-Hicom’s plant in Tanjung Malim, Perak into a regional hub for its Volvo marque. Although details are still sketchy, a former executive at DRB-Hicom’s automotive division tells FocusM that if the plant expansion materialises, it will be a key catalyst for Geely in the region.

“I believe so. There have been longstanding plans to expand the underutilised Tanjung Malim plant into a major Volvo assembly and distribution centre in Southeast Asia. The facilities in Tanjung Malim are widely considered to be one of the best in the region.

“Even Volkswagen was eyeing the Tanjung Malim plant when it was in talks to partner up with Proton,” says the executive.


Price rally

Although it is still early days, based on recent market reaction, expectations over DRB-Hicom’s collaboration with Geely are mounting. On Jan 4, DRB’s share price rallied to a high of RM2.39, its highest since September 2014. The surge in investors’ interest was partly due to the high expectations for the revival of its ailing automobile business.

The last time the price hit the RM2.30 level was on Sept 29, 2014.

Last year, a government official confirmed that Geely would be bringing the Volvo marque to Tanjung Malim with the construction of a new plant which will start this year.

Proton’s Tanjung Malim factory has a production capacity of about one million cars per annum and Geely has plans to upgrade it to beef up potential production of other marques.

It also plans to roll out a new Proton sports utility vehicle at the plant later this year.

Although the Geely brand is relatively unknown beyond China, the company has made an impact with its Volvo marque.

In 2010, Geely bought Volvo from Ford Motor Co’s (FN) for US$1.5 bil in cash plus assumed debt, the biggest 100% acquisition of a foreign car maker by a Chinese company.

Although many industry observers were initially sceptical of the deal, Geely has managed to turn around Volvo’s faltering fortunes. In 2009, Volvo Cars posted revenue of US$12.4 bil but recorded a pretax loss of US$653 mil. However, in 2015, it made an operating profit of US$776.6 mil.

Last June, Geely acquired a 49.9% stake in Proton for RM460.3 mil, of which RM170 mil was in cash and the remaining RM290 mil as a transfer of the Boyue platform to the national car manufacturer, which is expected to be used as a base for its first-ever SUV model.

Li Chunrong, an industry veteran with 30 years’ experience, was subsequently roped in as Proton’s new CEO.

 Although the Volvo plans will be a key component of Geely’s blueprint, the Chinese automaker will likely be judged primarily on its potential success or failure with Proton, which is seen as a tough task. It is targeting three years for the ailing national automaker to break even and five years to be profitable.

DRB-Hicom posted a RM736.56 mil net profit in the second quarter ended Sept 30, only its second profitable quarter in the last eight, but that was due largely to the RM1.1 bil research and development grant that Proton received from the government in October.  – Khairul Khalid

This article first appeared in Focus Malaysia Issue 266.