Proton Holdings Bhd, after signing a product collaboration agreement with Mitsubishi Motors Corp last year, is close to finalising a technology collaboration pact with another foreign automaker. An announcement could be made as early as next month, sources say.

“The collaboration between Proton and a European car company that has ties with the Japanese will be for product development,” says a source.

“There will be sharing of technologies but the foreign company will not have any management say in Proton,” adds the source.

It is believed that the foreign auto­maker is the Renault-Nissan group, helmed by CEO and president Carlos Ghosn. The Renault-Nissan alliance was established in March 1999 and was the first industrial and commercial partnership of its kind involving a French and Japanese company.

“At the moment, what Proton needs is a subcompact car and a Perdana (luxury car) replacement… the supposed collaboration should be for those segments and Renault-Nissan is strong in those. Also, in these types of technology-sharing deals, Proton probably has something the foreign auto company wants,” says an industry observer.

Compared to Toyota, observers say, Renault and Nissan lack a strong presence in the Asean market. Hence, Proton’s ample production capacity, its extensive supply chain and ability to develop new car models with a low budget will give Renault-Nissan a strong platform to expand its market share in the region.

“Proton already has some form of working relationship with Renault. As you know, it uses a Renault engine in the Savvy and previously used a Renault 1.8-litre engine in the Waja,” adds the industry observer.

The source says the new tie-up will not affect any of Proton’s existing partnerships, such as the product collaboration agreement with Mitsubishi to come up with a replacement for the Proton Waja.

“The signing of another collaboration deal is part and parcel of Proton’s strategy, which is to have a number of foreign partners, each strong in different areas to help enhance Proton’s product line. This deal would not affect any of Proton’s ongoing tie-ups. It’s more of an add-on to the family,” says the source.

In December, Proton and Mitsubishi agreed on a collaboration that would see Proton source a vehicle, with the Mitsubishi Lancer being a likely choice, to replace the Proton Waja. Proton is also expected to sign a deal with Netherlands-based Detroit Electric to jointly make electric cars. It was reported that the project is estimated to cost more than RM1 billion.

So, although talks with Volkswagen AG and General Motors fell through, it looks like Proton’s strategy to share technology with multiple foreign partners is starting to pan out.

Formed over 25 years ago, Proton still faces the question of whether it can sustain being a standalone car manufacturer. The company has yet to export in a big way, with Malaysia making up the bulk of its market, which is becoming saturated.

There has always been a belief that Proton needs to hook up with a foreign company to bring it to the next level and compete in the automotive industry. The company has been urged many a time to forge partnerships with foreign automakers to gain expertise and economies of scale to strengthen its operations.

However, rather than clinging to one major strategic partner that has management control of its operations, Proton seems to favour having several core partners.

On April 15, Proton will be launching its first MPV (multipurpose vehicle), the Exora. In the RM70,000 range, many reckon it is attractively priced. With sales momentum for Proton’s top-selling models — the Saga and Persona — softening, the Exora is seen as a catalyst to boost sales volume.

However, investors have been impatient. From its 52-week high of RM4.06 last April, Proton’s share price dipped to touch its 52-week low of RM1.50 on March 18, the lowest since it was listed in 1992.

Analysts covering Proton are not optimistic about its prospects. “After the latest quarter, Proton was still making a loss at gross level. When is it going to improve? That is a key point. Despite support from the government, its performance is still lacking. We have been giving Proton a chance the past few years to fatten its margins but it has yet to get there,” says an analyst with a local research house.

For 3QFY2008 ended Dec 31, Proton registered a net loss of RM74.7 million compared with a net profit of RM10.3 million the previous corresponding quarter.

Most of the analysts polled on Bloomberg have a “sell” call on the stock. The 12-month consensus price for the stock is RM1.84.

CIMB Research has maintained its “underperform” call on Proton, with an unchanged target price of RM1.45, given poor industry sales prospects and margin compression arising from higher operating and material costs.

“Proton’s outlook for 2009 is undeniably challenging with only one new model to bank on and no potential partnership in sight. In the short to medium term, the outlook for the auto industry remains subdued. Taking a longer-term perspective, we think Proton needs an established long-term partner which can assist in terms of platform, R&D, skills and technology,” the local research house says.

Could this possible partnership be one of the many needed to bring Proton out of its pothole?

This article appeared in the Corporate page, The Edge Malaysia, Issue 748, March 30-April 5, 2009