The Hindu Business Line : Auto industry weaves deal-making web

THE world of unaligned automobile companies this side of Asia, is beginning to resemble a supermarket. Earlier clarity in tie-ups is getting blurred by a web of shopping deals.

MG Rover has a tie-up with Tata Motors to sell the City Rover in Europe, 1,00,000 units over five years. Last month, MG Rover and Proton signed a letter of intent to explore the feasibility of collaborative projects.

Both Tata Motors and MG Rover have spoken of their link likely growing bigger. Won't a Rover-Proton deal dilute it? "I really cannot say anymore than the two companies are talking,'' MG Rover's spokesperson told Business Line. Industry sources say the pursuit is for a mid-size car.

Rover's attraction to Proton can be understood against the latter's ownership of the UK-based Lotus, the engineering firm behind Proton's new CAMPRO engines that weaned the Malaysians off dependence on Mitsubishi. Besides, as with Tata, Rover possibly gains access to Asian manufacturing costs.

The new mid-size car is a longstanding Rover dream, for which it inked a joint venture with China Brilliance in 2002. That agreement failed. But Tatas have discussed cars with China Brilliance, early though to speak of them as partner.

Proton, raised in a protected market, is in challenging times. Malaysia's CKD/CBU import duties have fallen (excise duties have been raised), the ASEAN market stands usurped by global giants, FTAs are proposed and competition is growing from Toyota, Honda and Hyundai. Proton is open to alliances.

Consultants cite Renault, Ford and Tata among names likely spoken to (no official confirmation of this). They don't belong to the same league. But sources submit, right perspective is to appreciate the qualitative difference between a major league tie-up and one with an equal.

"Both have their own merits,'' a top company official said finding example in China Brilliance's indigenous `Zhonghua' sedan, joint venture with BMW, collaboration with Toyota and readiness to partner MG Rover (in 2002, the Chinese outfit was also talking to Renault).

Proton is strategic to the Asian market, from the twin angles of being the biggest in ASEAN and owning technology. In March 2003, Tata Motors and Proton had similar revenue of $2.4 billion. On March 10, Mitsubishi Motors - DaimlerChrysler holds 37 per cent in it — sold its 7.9 per cent equity in Proton (Mitsubishi Corporation still holds 8 per cent) to local and foreign funds reportedly for under $100 million. An affordable sum for medium companies, the Tatas paid $102 million for DWCV.

Malaysia's state investment arm later bought 4.35 per cent taking its total in Proton to 35 per cent. "Proton wants to be an independent carmaker. Still a stake in it may be a tasty bite for Renault,'' an industry consultant familiar with the region and who spoke of Tata-Proton contact, said.

Renault, holding equity at Japan's Nissan and Renault-Samsung in Korea, has been active. In 2003, it revised an old Malaysian deal, signing afresh with Tan Chong Motor Holding (TCMH) to make the Renault Kangoo. Last week, it agreed to a joint venture - Renault Pars - with Iran's Automotive Industry Development Company (AID Co) to make vehicles based on Renault's X90 platform.

In November 2003, AID Co, which oversees Iran Khodro and SAIPA Khodro, had signed a strategic alliance with Proton. Accordingly, Proton will supply Malaysian designed/built vehicle platforms and CAMPRO engines to the Iranians.

Amidst this, discussions continue between Tata Motors and Iran Khodro. To sum up - MG Rover's deal with China Brilliance fails; MG Rover signs with Tata for City Rover; Tata talks to China Brilliance; Proton reportedly speaks to Ford, Renault, Tata; MG Rover agrees to a study with Proton; Mitsubishi Motors exits Proton; Renault said to value Proton, signs up TCMH; Proton pact with AID Co; Renault deal with AID Co, Iran Khodro talks to Tata. Industry consultants are enamoured by potential Rover-Tata-Proton-Iran Khodro synergy, but industry discounts any pattern to deals so far.

It sees reasons for the dense web auto sector relations this side of Asia.First, major league alliances have occurred, further appetite depends on ability to digest. Second, unaligned outfits from China, Malaysia, India and Iran have their own logic for treading alone. "Chinese companies wish to own technology, the Malaysians see themselves as future first world players and the Iranians have historical reasons to prefer being free,'' the company official said.

Third, these markets and India, were once protected. As they open up and boom, the world rushes in, multiple alliances easily fostered. Fourth, overcapacity makes additional sales opportunities precious. Fifth, equity sharing is no more a prerequisite to working together. Finally, it is hard to beat manufacturing costs here, hence, the typical Asian auto maker with multiple tie-ups.

Welcome to the automobile supermarket!