The Renault situation

Since yesterday’s post about Lotus and Renault I have had some interesting conversations with some of those involved and it seems that things are just as complicated and messy as they have been from the start, and that there are no clever plans (as yet) to get the whole mess sorted out.

At the opening of the Kuala Lumpur International Motor Show Proton Group managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir told the local media that the company’s intention is to buy into the Renault F1 team, in order to support the expansion of the Lotus brand.

“A decision will be made soon,” he said. “It will be made for the betterment of the Lotus brand. We as a shareholder have to make sure it survives. We’re close, just wait for a few days. It’s still too premature to disclose the exact percentage but it has to be a position where we can control our brand.”

This ultimately has to mean more than 50% otherwise Proton would have no control and this ties in with stories that were circulating during the Abu Dhabi GP weekend that Proton would buy control of the team for a nominal sum, in exchange for a commitment to support the team for five years, to the tune of $20 million in sponsorship each year.

“If you look at all the other OEMs like Ferrari and Mercedes, F1 has a direct impact on their marketing and branding.”

The difference is that Ferraris are Ferraris, and Mercedes F1 cars Mercedes. Because of the way in which the Concorde Agreement is structured, a purchase of Renault would still leave the cars known as Renaults, unless all the teams agreed to a name change. The team could change the name without agreement but that would mean writing off around $50 million in revenues linked to the Renault F1 name, and starting again, with a three-year period in which to earn a place as what is known as a “Column One” team, which is a team which has finished in the top 10 in the Constructors’ Championship at least twice in the last three years. This does not make sense. There are dangers that there will be further legal actions if Lotus does enter F1 with Renault F1 as the Team Lotus organisation feels that Group Lotus is using its heritage in racing and “passing off” as being connected to the old Team Lotus. Team Lotus says that it has the right to use the Team Lotus brand in all matters relating to Formula 1 and is awaiting a court ruling on the matter. If this is confirmed then Group Lotus may be open to legal attack for using Team Lotus intellectual property without authorisation and thus damaging the Team Lotus brand. That could involve more financial pay-outs in the longterm. Both sides seem to be intent on holding on to their current positions and thus an explosion must eventually come, unless Group Lotus will agree to pay Fernandes to go away and use another brand. Clearly, Proton does not believe it is worth doing this.

It is interesting to note that Fernandes remains almost a cult figure in Malaysia, which is more than can be said for the Proton bosses – and has just been named as Businessman of the Year in the December issue of Forbes Asia magazine. He continues to expand his other businesses at a pace. Thus it would not be wise for the Malaysian government to attempt to crush the country’s star entrepreneur. Proton does not want to be seen to back to Fernandes, or to accept that it might have made a mistake by appointing Dany Bahar as the head of Group Lotus. Bahar has dazzled the world with his plans for Lotus, but the industry itself is less than impressed with mutterings that all Bahar’s plans are all oompah and puff and are wildly unrealistic. They also doubt that it will be possible to reposition Lotus as a rival of Ferrari in the space of a few years, particularly when Lotus is not selling many cars and Proton is in no position to support the English company. The current project seems to be being funded by banks, with the Malaysian government having guaranteed the loans – which means that if it goes horribly wrong, then the Malaysian taxpayer will be footing the bill.

Proton continues to perform relatively poorly at home although there is once again a push to merge with company with rival Perodua, in order to better use Proton’s production capacity, which is currently underemployed because of Proton’s failure to match its projections. The latest figures show that Perodua sold 166,000 cars in 2009, while Proton sold 160,000. The belief now appears to be that a merger would create a stronger and more capable company, with better economies of scale, lower costs and more potential to expand. Perodua seems less keen on the idea than was once the case as it is making profits and cars are selling well. Proton on the other hand knows that there is a need to act quickly as the protected position of the two companies is being eroded away by developments in free trade in the ASEAN region, with plans for rival manufacturers to have domestic production facilities in Malaysia in the years ahead. Although the government has influence in both companies, Perodua is also linked to Japan’s Daihatsu.

Fernandes’s decision to stick with Team Lotus is a challenge to Proton and might knock a few noses out of joint in Kuala Lumpur, but it is perfectly reasonable. He may reason that he has nothing to lose: either Proton will pay his price and give him the money to launch a new brand in F1; or he could be playing a longer game in which he will wait for the collapse of Group Lotus, the disappearance of Bahar – and probably Zainal as well – and then swoop in and save the day, using the F1 team to relaunch Lotus under his control, probably buying the whole Proton group from the government, which would be a repeat of what he did with AirAsia, which was a horrible government-owned mess until the politicians sold it to him for a ringgit and let him turn it into a huge success. At the moment Fernandes’s brands are aimed at the lower end of the consumer markets with the budget airline AirAsia and the low-cost deals offered on hotels, credit cards and mobile phones by the Tune Group. A low-cost car would be a logical step in this respect while turning Lotus into a higher-end business, selling all manner of branded quality items to the richer members of Asian society would be another interesting business plan.

For the moment at least all this is way above the heads of the folk at Renault F1 and it is expected that Vitaly Petrov will be retained. Russian Prime Minister Vladimir Putin seems to be keen to help out and while the Petrov family and friends have access to some cash, Putin can open much bigger doors, as was seen the other day at the announcement of the Russian GP for Sochi which featured an unusual situation of Bernie Ecclestone being the poorest man in the room!

So I expect that we will see Petrov confirmed in the second Renault seat and a deal announced with Lotus to be the title sponsor. The cars will appear on TV screens as Lotus Renaults and the people involved believe that this will be enough to result in the cars being considered to be Lotuses.

This is daft and there will have to be a court battle before next season begins as to have different Lotus cars running around will be brand-numbingly stupid for all concerned.