Proton, VW Move Closer to Partnership

KUALA LUMPUR, July 21, 2007; Reuters reported that Malaysia's national carmaker Proton Holdings Bhd and Germany's Volkswagen have moved a step closer to a partnership deal after recent talks, a Malaysian newspaper reported on Saturday.

State investment arm Khazanah Nasional Bhd, which owns 43 percent of Proton, is in talks with Volkswagen and U.S. auto giant General Motors to sell some of its stake in the loss-making company.

Volkswagen is viewed as the frontrunner to partner Proton and has held two rounds of talks with the Malaysian government. A third round could be in the offing but talks with U.S. carmaker General Motors are also under way, the government said last month.

Under the new agreement, Proton will control its domestic distribution network while Volkswagen will handle international distribution, the Edge financial weekly said, quoting unidentified sources.

"It is also understood that VW may have agreed to pay some cash for its 51 percent equity in the new company that will own key assets of Proton," the paper reported.

The balance of the equity will be satisfied with injection of technology and platforms.

Malaysia's trade minister said on Wednesday the country wants to sell its stake in Proton but won't act hastily in the matter.

"What we are looking for now is for somebody to buy the government-owned shares and that somebody should be able to provide the right kind of technology," Rafidah Aziz was quoted as saying in Tokyo.

Proton has been struggling with a steadily declining market share at home due to fierce competition, and has been unable to make up the shortfall through exports.