AUTOSHOW-VW aims to take 20 pct stake in Proton -source

FRANKFURT (Reuters) - Volkswagen AG (VOWG.DE) wants to take a 20 percent stake in Malaysian carmaker Proton (PROT.KL) and could increase its share to a majority, a person familiar with the situation said on Wednesday.

Wolfsburg-based VW, the world's fourth-largest carmaker, plans to propose the move to the Malaysian government, the source told Reuters at the Frankfurt International Motor Show on Wednesday.

The idea is for the Malaysian government gradually to pull out while taking on any losses during a starting phase, the source said, adding that the Volkswagen stake could be increased to 50 percent within five years.

The German carmaker has long been interested in strengthening its position in Southeast Asia. Last week it said it had arranged high-level talks in coming weeks on further steps towards linking up with Proton.

The Malaysian firm, which faces a shrinking market share in an increasingly competitive domestic market, wants to tie up with a global carmaker to boost its sales and turn itself around.

It expects to return to profit this financial year, helped by the launch of a new car that will replace its most successful model, the 14-year-old 'Wira' sedan.

Proton, set up in 1983 by former Prime Minister Mahathir Mohamad, was for a long time state-protected due to affirmative action policies aimed at giving the country's ethnic Malays business and employment, and at one point it sold more than half of all new cars in Malaysia.

But since barriers to competition started coming down, Proton has lost market share, not just to international rivals but also to domestic carmaker Perodua.

Last November, the government announced it had decided to consider giving approval for VW to take a controlling stake in Proton's manufacturing operations.

The Malaysian government has also held talks with VW rivals PSA Peugeot Citroen (PEUP.PA) of France and General Motors (GM.N) of the United States.