Volkswagen fails again to reach deal with Proton

FRANKFURT (Reuters) - Volkswagen, the world’s fourth-largest carmaker, has quit exploratory talks with Malaysia’s Proton Holdings over possible cooperation but still plans to build up a production base in Southeast Asia.

“The Volkswagen group and the Malaysian government have decided not to further pursue for now joint discussions about a cooperation or an equity stake in the Malaysian carmaker Proton Holdings Bhd,” the German company said in a statement.

It was the second time in two years that talks over cooperation have ended without a deal.

Less than 90 days ago in early September, VW said it would expand its efforts to reach a deal and the group’s production boss, Jochem Heizmann, said at the beginning of this month he expected to reach a conclusion in the first half of next year.

“Volkswagen will now independently examine other possibilities to enter the ASEAN market and further strengthen its sales operations in the region including Malaysia,” it added.

The Malaysian government announced on Tuesday that it would no longer look for a foreign partner for the ailing domestic carmaker for now and added that state-owned investment firm Khazanah had stopped its talks with both VW and U.S. rival General Motors.

“The circumstances have changed,” an aide to Second Finance Minister Nor Mohamed Yakcop quoted his minister as telling a group of Malaysian editors at a briefing.

Volkswagen has long been interested in strengthening its position in southeast Asia and first agreed to a long-term strategic partnership with Proton in October 2004, only to say in January 2006 that it had scrapped the plans after Malaysia ruled out VW taking control of Proton.

The loss-making Malaysian carmaker, 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 it sold at one point more than half of all new cars in Malaysia.

But ever 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 had also held talks with PSA Peugeot Citroen of France, as well as VW and GM.

Reporting by Christiaan Hetzner, editing by Elizabeth Fullerton