Malaysia's Proton, Volkswagen talks stall

KUALA LUMPUR (AFP) - Talks between Malaysia's Proton and Volkswagen have stalled after a plan by the German auto giant to acquire a substantial stake was opposed by Proton's senior management, a report said.

The Edge financial newspaper said as a result, an ambitious technical tie-up between the two automakers had also been delayed.

Proton said last October it would assemble and sell VW cars as part of a "long-term strategic partnership" that could lead to technology sharing and the joint development of cars.

Proton officials could not be reached for comment.

The Edge said Proton's top managers were opposed to the amount of equity VW would expect to hold in Proton Holding in return for which the German automaker would offer its technical expertise and global reach.

"But as long as the technical details cannot be ironed out ... the equity details remain hanging," it quoted a source as saying.

The report said VW did not plan to take over Proton but to hold significant interest.

"It is a sensible equity stake which would justify the kind of technological transfer we expect," the source added.

But Proton's management, led by Tengku Mahaleel Ariff was opposed to VW taking a significant stake, the report said.

Prime Minister Abdullah Ahmad Badawi recently said Malaysia would gradually reduce protection measures for national carmaker Proton and urged it to improve quality and become more competitive amid declining Proton sales.

The national carmarker used to sell six out of every 10 new cars in Malaysia but growing foreign competition is eating into its market share, which fell to 44 percent in 2004 from 48 percent in 2003.

Malaysia's state investment arm Khazanah Nasional has a majority 42 percent stake in Proton.

Malaysia, one of the region's top passenger car markets, cut import duties to 20 percent on ASEAN cars on January 1 under the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) agreement.

However, it would delay reducing duties to the required level of below five percent until 2008.