Proton to face heavy losses after investing in Formula One
The Malaysian car manufacturing company, Proton is considered to be facing some rough time after its subsidiary Group Lotus invested heavily in Formula One auto racing series.
Group Lotus has recently signed a deal with the Luxembourg-based investment firm, Genii Capital’s owned RenaultF1 team. The newly-signed deal makes Group Lotus the title sponsor of the team, with the team’s official name as Lotus Renault GP.
However, according to recent reports the budget required to run the team is much higher, exceeding the estimates by Proton, the owner of Group Lotus. While talking to the media earlier this week, the representative of Maybank Investment Bank said, “We do
not share Proton’s direction of spending for the F1 whilst most major automakers have already exited the circuit in recent years. The high capex will dent Proton’s war chest and affect cash flows, impacting its business and financial turnaround plans. Whilst
we do not think it will face new funding difficulty, Lotus’ huge capex needs will significantly drain its cash flow over the next five years and deplete its war chest.”
The bank officials showed no excitement for Lotus’ involvement in Formula One and believe that there is very little benefit for Lotus in the highest ranked auto series of the world. Since, the company does not have any new product to be launched until 2012;
hence the officials believe that there is little to reap from a heavy investment.
Maybank is the largest financial group and bank in Malaysia, and provides financial services to various countries. It sees the deal between Group Lotus and Renault as a risk for Proton’s financial stability. The Lotus-Renault F1 venture is part of the 5-year
plan by Proton aiming to take Lotus to new heights in the realm of car manufacturing. According to estimates, Proton is expected to invest nearly $750-million in this venture.
The impetus for entering into the highest ranking racing series of the world was provided by Ferrari and Mercedes, which are active participants in the sport and enjoy huge commercial benefits through it. Proton management believes that their inclusion in
the series will bring about similar marketing and branding success.
While talking about the entire project, the Proton Holdings Group Managing Director Datuk Syed Zainal said that it was not possible for Group Lotus to raise all the money alone. Therefore, he believes that it was necessary for Proton to back this five-year
turnaround exercise, which will benefit both the entities equally.
He stated, “We are confident we can turn around Group Lotus as we have five new Lotus models that will start production by 2012. Everyone here is very committed, excited and dedicated to see Group Lotus achieves its turnaround plan. It is a do able plan.
We have thought through this plan a hundred times and it is a challenge but realistic.”
Group Lotus chief executive officer, Dany Bahar explained in a recent press conference that Lotus’ involvement in Formula One is very crucial to the company in order to convert it into a leading brand. He further added that universal appeal and huge fan
following of Formula One, all through the year, will boost Lotus’ image immensely.
However, the past few years have shown a contrasting trend in the sport as big names like Honda and Toyota pulled out from the sport, owing to the ever swelling budgets required to run Formula One teams.
Presently, the French brand, Renault is merely the engine supplier to the team while Lotus has become a 100 per cent owner of the team’s shares.
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