Proton shares dip on fears that talks with VW may fail

Proton shares dip on fears that talks with VW may fail

Associated Press, Kuala Lumpur, Malaysia

Shares of Malaysia's national car maker Proton fell 3.6 percent
on Monday morning amid concerns that a proposed alliance with
German auto giant Volkswagen AG may collapse, traders said.

Proton shares fell to 8.05 ringgit at the end of morning
trade, down 0.30 ringgit from their close on Friday.

Traders said news that Proton was eager to acquire two basic
vehicle designs from Volkswagen sparked concerns that Proton may
not be successful in selling an equity stake to Europe's largest
carmaker.

Traders said it made no sense for Proton to buy the Volkswagen
vehicle platforms since the two companies were already in talks
for an equity tie-up that would eventually lead to a technical
collaboration. The implication was that the planned collaboration
may not happen, traders said.

The Edge business weekly on Monday quoted an unnamed Proton
official as saying that the Malaysian car producer was interested
in buying platforms for the popular mid-sized Passat saloon car
and the Sharan multipurpose vehicle in a rush to produce new
models to curb falling sales.

The magazine said Proton is hoping to acquire the platform for
the old 1996 Passat model, which is shared by the Audi A4 car.

The report didn't say how much Proton would pay for the
platforms. Proton officials weren't immediately available for
comment.

Faced with a shrinking market share and growing foreign
competition, Proton has been searching since last year for a new
foreign alliance following the withdrawal of its longtime
Japanese partner Mitsubishi.

Proton has long enjoyed government protection in the form of
high tariffs on foreign cars. But as tariffs are being whittled
down under a regional free trade pact, its market share has
dwindled from 57 percent in 1993 to around 30 percent in June.

The car maker sank into the red in the quarter that ended in
June, and is also suffering from an absence of clear leadership
since its embattled chief executive was ousted in August.

Analysts say a tie-up with Volkswagen may be just the antidote
needed to lift sales at home and abroad, and ensure its long-term
survivability as foreign competition heats up under Malaysia's
auto liberalization.

But some auto analysts warned Volkswagen may abort the
alliance if it can't obtain a majority stake and management
control.

Proton, controlled by the government's investment arm,
Khazanah Nasional Berhad, last month said it is open to selling
an equity stake to Volkswagen but will not cede control to
Europe's largest carmaker.