Remember when Proton paid 70 mil Euros for MV Agusta, and sold it for 1 Euro?

Contrary to what my friends, mother, and Google search results might tell you, I am an overly optimistic fellow. I tend to focus on the positives in people and situations and give them the benefit of the doubt first. So, with that, allow me to have a crack at explaining just what the reasoning behind Proton’s ownership of MV Agusta was.

Anyone with a cursory knowledge of Proton would have heard about MV Agusta. In 2004, Proton paid 70 million Euros (RM367 million) for a 57.7 percent controlling stake in high-end Italian motorcycle manufacturer MV Agusta. A year later, Proton sold that stake with nothing to show except a receipt for one measly Euro. Or a plate of nasi lemak without the rendang to put that into perspective.  

Needless to say, the fallout of the Proton-MV Agusta deal marred Proton’s reputation and vaporised its goodwill with the people. Millions were pissed away in what many speculated as corruption, hubris, or both.

At least Proton’s failed US-export deal was driven by the promise of a foot into the lucrative North American market. Savvy investors being hoodwinked into faulty investments by a conman’s grift is nothing new, look at what happened with Enron.

So, what on earth was a maker of cars for the people doing dabbling with “the Ferrari of motorcycles”? On the face of it, it sounds like a rich kid who blew the family fortunes on luxury names and bad decisions. It is a cautionary tale as old as time and relevant as Jho Low. Was there any method behind the madness? As it turns out there was.

In 2009, I had the good fortune of meeting the man who masterminded Proton’s purchase of Lotus Cars and MV Agusta, former Proton CEO, Tengku Mahaleel Tengku Ariff. While we originally met to talk about the return of Lotus to Formula One in 2010, the conversation quickly veered towards the two controversial acquisitions.

More than just getting the rights to slap some Lotus stickers on a Proton, the acquisition of Lotus was to fast track the company’s growth into becoming a full-fledged independent carmaker. According to Mahaleel, the maths for Proton’s half-a-billion-ringgit purchase of Lotus was worth it.

"Based on our calculations with the additional technical fees, we were paying RM25,000 worth of parts that only cost RM18,000 if we were to make them ourselves. Adding to that, we couldn't export such products overseas and expect to turn over a profit, as was the current arrangements, Proton's exports were bleeding the government to death,“ Mahaleel explains. 

"When a Campro 1.6 costs RM4500 per engine and you were paying close to RM6500 per engine from a Japanese manufacturer, you can save nearly RM2000 per engine, and if you sell 150,000 engines a year, in a year you will be saving the company nearly RM300 million. Do the maths and the investment in Lotus would have paid for itself in just two years."

"Furthermore, with Lotus' expertise, we developed our own engine management system which saved us RM400 per unit, that equates to a saving of RM22.57 million in the first year alone."

Likewise, Mahaleel had similar intent with MV Agusta when Proton announced its intentions to acquire the company in late-2002. Though reports on the motivations for the purchase varied.

On one hand, reports stated the purchase was in line with Malaysia’s National Engine Plan to supply engines for motorcycles, automobiles, military, logistics, medical, and power generation. Other reports speculated that Proton wanted to have a go at making two-wheeled products and even adopt MV Agusta's stylists into its car styling department. A few fringe ideas of producing MV Agusta branded luxury performance cars were also mooted.

Instead, Mahaleel had more realistic goals for MV Agusta. He had his eye on the company’s expertise in small engines. 

“Our intention with MV Agusta was to tap into their engineering capabilities for small 1000cc engines that we could use for a small city car,” Mahaleel admitted. “Motorcycle manufacturers are experts in designing compact and yet powerful drivetrains, which would be ideal for small cars.”

Mahaleel also claimed that Proton had drawn up plans for a RM10,000 city car and was even working on a rotary-powered electric hybrid drivetrain. Whether the city car would feature an MV Agusta developed powertrain, he didn’t care to elaborate. To him, there was no point ruminating on its short-lived past. 

Unfortunately, Mahaleel’s vision for MV Agusta along with a myriad of proposed Proton models, was never realised. Shortly after the acquisition of MV Agusta in December 2004, Mahaleel was unceremoniously kicked out six months later.

His ambitions and plans were scrapped by a new, and more fiscally, conservative management who had little patience for the money-losing motorcycle manufacturer or its technical potential. At the end of 2005, Proton - shocked at the millions needed to bring MV Agusta back into profitability - hurriedly discarded its stake in what looked to be a reckless move.

We may never know for sure if Proton’s ambitions could be realised or whether it would have been successful if Mahaleel remained in the company. Was the acquisition of Lotus Cars and MV Agusta wise? While the intent was honest, the choices leave a little to be desired. Both companies, while famous for making prestige products, weren’t known for making money.

Mahaleel’s shortlist of acquisition candidates included Cosworth, Pininfarina, and Porsche. Companies that were known for its engineering and car-building expertise, but not so much about its long-term viability.

However, it must be said that Proton of 1996 was far different from Proton of the mid-2000s. Proton was in good financial health enjoying consecutive years of profits in the hundreds of millions. The goal of acquisition was not for investment purposes to bolster its bottom-line but fast-track its engineering capabilities.

Although Lotus Cars did deliver the engineering know-how that Mahaleel was seeking, all things considered, to this author the MV Agusta deal was a deal too far.

While it is true that MV Agusta would have the expertise in building advanced 1-litre engines, whether it would deliver a viable powertrain for car applications is doubtful.

During a visit to the BMW Motorrad factory in Berlin, I asked a representative if there is any cross over in engineering and manufacturing between BMW Motorrad and BMW cars. He looked at me as though I had been dropped on my head as a child. As it turns out, nowadays motorcycle engineering and car engineering rarely exist on common ground.

To date, there are only three big mainstream companies in the world that operate both a car and motorcycle engineering and manufacturing operations – BMW, Honda, and Suzuki.

For these three companies, much of its car and motorcycle design and manufacturing operations are kept separate from one another. It is only when you look at the finer points to car and motorcycle engineering you start to see why.

For starters motorcycle engine designers don’t need to worry about many legislations that their counterparts in the car business are burdened with - namely emissions.

Europe only started enforcing Euro 4 emission regulations for motorcycles in 2016, a whole 11 years after legislating it for cars. Back in 2005, engineering an engine to meet Euro 4 to fulfil Proton’s export ambitions would have been a significant challenge for MV Agusta.

This is before we get into the tedious considerations such as service intervals and costs, which are shorter and more expensive respectively than what car users are expecting.

Volume production too would be a challenge as motorcycle engines comprise a huge percentage of the total vehicle cost, allowing the use of more exotic components and production methods.

Furthermore, motorcycle engines are designed to lug around 200kg of motorcycle and rider, not 1000kg of car alone. Designing a small displacement engine for car applications might be beyond the engineering capability of a tiny operation like MV Agusta.

For comparison, despite the engineering expertise of BMW, only one car in its range has an engine from a motorcycle, the i3. And in the i3’s case the tiny scooter engine is only used to generate electricity and not power the wheels.

Many would argue that Yamaha does a fine job at building excellent motorcycles and engineering legendary car engines like the Lexus LFA's V10. Yes, Yamaha is very well known for that, but they are a giant conglomerate that produces motorcycles, outboard motors, ATVs, and even pianos.

Furthermore, when car manufacturers come knocking, Yamaha doesn't give them motorcycle engines but rework existing, or design entirely new, car engines at great expense.

Remember, Mahaleel wanted the small MV Agusta company to create small engines for a cheap small car. If Yamaha is to serve as a case study, the maths behind Mahaleel's vision doesn't add up. 

If it is any consolation, Mahaleel might be ahead of his time as the big brains at Audi and Mercedes-Benz would make similar moves a decade later. Audi acquired Ducati in 2012 and Mercedes picked up a 25 per cent stake in MV Agusta in 2014, for vague reasons that still perplex industry pundits to this day.

To date, aside from some “marketing opportunities” and shared parts distribution, there have been no substantial technical collaborations between the two German carmakers and its Italian motorcycle manufacturers.

The whimsical Ducati 1199 Superleggera-powered Volkswagen XL Sport concept back in 2014 was the only time a Ducati component ever appeared in a Volkswagen AG product. With Mercedes selling its stake in MV Agusta in 2017 and rumours swirling about an imminent sale of Ducati, it looks likely that these tie-ups won’t be bearing fruits.

Even if Mahaleel were to stay on at Proton, integrating MV Agusta would have likely caused further financial trouble. In the end, it could have become a long-drawn-out mess that Proton could ill afford to handle in its late-2000s malaise. As doctors would say, it is better to cut the growth out before it metastasises.

In keeping with my optimistic worldviews, the MV Agusta purchase was done with good intentions. Where it lacked, however, was overestimating the motorcycle maker’s technical relevancy and not fully understanding the business it is in. However, if it wasn’t for the way Proton sold its stake in MV Agusta for a symbolic Euro, this chapter might not have been so irredeemably tainted.

"Technology" is today's do all magic word to get everyone excited while their pockets are emptied. A lot of companies today are chasing new technology trends just to sound more valuable and relevant. Find out more at The Motor Muse.