Lotus Sale Seen 30 Years After Bond Let Go

By Chong Pooi Koon, Siddharth Philip and Steve Rothwell - Dec 27, 2011 6:01 AM GMT+0700

James Bond stopped using Lotus as his vehicle of choice to fight villains 30 years ago. Investors say Malaysia’s Proton Holdings Bhd. (PROH) should follow suit in abandoning the sports-car maker.

Proton, the Malaysian maker of sedans and taxis that bought control of Lotus in 1996, hasn’t made any profit from the British unit for 15 years and probably won’t at least until 2014. Now that Proton itself may be divested by its state-run parent, investors such as Gan Eng Peng say Lotus Group International Ltd. is ripe for a sale.

“It will make sense for them to sell it,” said Gan, who helps oversee about $3.6 billion as head of equities at HwangDBS Investment Management Bhd. in Kuala Lumpur. “Proton and Lotus are not a good fit. They are in different market segments, both in terms of geography and product.”

Lotus, which has struggled to compete against Porsche AG (PAH3) and Ferrari SpA in Europe, has hung on to relevance in the auto industry partly because of its decades-long expertise in designing lightweight frames. Still, the company may need the backing of a carmaker more global than Proton to survive in an industry where carmakers such as Saab Automobile are filing for bankruptcy, according to Gan.

Interest in Lotus

Lotus’s sale has been the subject of speculation before. Shanghai Automotive Industry Corp. this month denied an Edge newspaper report that said China’s largest carmaker is interested in Lotus. Two months ago, Proton denied a report by the Star newspaper that it was selling its Lotus stake to Luxembourg-based Genii Capital.

Lotus Chief Executive Officer Danny Taner Bahar, formerly a Ferrari executive, said he’s confident he can make the company break even by 2014 as long as he has the financial backing.

“The only thing we can do is show the current owners, or the new owners, that we are absolutely in line with the business plan that we have presented,” Bahar, who’s based in Norfolk, U.K., said in an interview last week. “Without the funding support and the guarantees given by the Proton group, we would not survive, end of story.”

Bahar said Lotus, whose cars were featured in the James Bond movies “The Spy Who Loved Me” in 1977 and “For Your Eyes Only” in 1981, will continue to turn to its engineering strengths to stay competitive.

Lightweight Frames

Phil Gott, an IHS Automotive analyst specializing in powertrain research, agrees that Lotus technology is excellent. Expertise in making lightweight frames, a defining area of strength since its founding in 1952 by British inventor Colin Chapman, has allowed Lotus designs to be a popular option for electric cars, Gott said.

Tesla Motors Inc. (TSLA) has relied on Lotus chassis designs since 2008 for its $109,000 Roadster sports car. Then-Chrysler LLC had also planned to contract Lotus to produce electric vehicles before the Auburn Hills, Michigan-based company filed for bankruptcy in 2009, emerging as Chrysler Group LLC.

The Lotus Elise weighs 2,010 pounds (912 kilograms), making it the lightest performance car sold in the U.S., according to Santa Monica, California-based Edmunds.com. The 2012 Porsche Cayman is 2,932 pounds while the Mazda (7261) MX-5 Miata sports convertible is 2,480, according to the website.

“One of Lotus’ key attributes, part of the DNA, is to go the extreme in achieving the most intelligent and clever technological engineering,” Bahar said.

Lotus DNA

Lotus’s DNA may share few similarities with that of its Malaysian owner. While Lotus makes sports cars that are sold for as much as 513,000 ringgit ($163,000) in Malaysia, Proton sells hatchbacks for as low as 34,000 ringgit. Before Proton, Lotus’s owners included the former General Motors Corp. (GM), which later emerged from bankruptcy as General Motors Co., and Romano Artioli’s Bugatti International.

Proton’s stock has gained 44 percent in Kuala Lumpur trading this month as speculation on its sale heated up. State- owned Khazanah Nasional Bhd., which holds a 43 percent stake, has since confirmed it received offers. Khazanah officials have declined to comment on Proton’s sale beyond saying it received proposals of interest. Sime Darby Motors, Naza Group, Hyundai- Berjaya Sdn., DRB-Hicom Bhd. (DRB) and UMW Holdings Bhd. (UMWH) are candidates, the Edge reported Dec. 3. Sime and UMW have said they aren’t interested.

Former Malaysian Prime Minister Mahathir Mohamad, who founded Proton in 1983, said Dec. 13 that billionaire Syed Mokhtar Al-Bukhary’s DRB-Hicom, an auto assembler, is the best candidate to buy the government stake and that Proton shouldn’t be sold to a foreign company. DRB-Hicom Managing Director Mohd Khamil Jamil wasn’t available for comment because he’s on leave, said his secretary.

National Carmaker

For Proton, whose profit tumbled 76 percent in the latest quarter, unloading the U.K. unit may give it room to invest in production facilities as Malaysia’s national carmaker faces mounting domestic competition from Toyota Motor Corp. (7203) and Perusahaan Otomobil Kedua Sdn Bhd.

Lotus needs about 2.4 billion ringgit in order to help it return to profit, according to OSK Holdings Bhd. (OSK) estimates. The brand may be worth about 1 billion ringgit, or about triple its current value, once it’s profitable, according to Ahmad Maghfur Usman, an OSK analyst.

For that to happen, Lotus will have to sell 8,000 vehicles a year, he said. The carmaker sold 1,985 units for the year ended March 31, according to its annual report. That compares with Ferrari, whose chairman said in September will probably post record sales of 7,000 cars this year.

Those numbers may be difficult to reach under current ownership.

“Proton is better off without Lotus,” said Alexander Chia, a Kuala Lumpur-based analyst at RHB Capital. “There are no product synergies.”

To contact the reporters on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Steve Rothwell in London at srothwell@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net