Proton to assemble VWs for SE Asian market

Proton to assemble VWs for SE Asian market

Associated Press
Kuala Lumpur

Malaysian carmaker Proton says two Volkswagen models it will
assemble under a new deal will be sold in other Southeast Asian
countries under the region's free trade area agreement.

Proton said in a statement late Tuesday that Volkswagen will
assist it in quickly reaching the German automaker's quality
standards in assembling the yet-to-be-announced models.

Under the deal, Proton, which has a dominant share of the
domestic market, is set to begin assembly of the two models late
next year. Volkswagen has said it expects sales to top 15,000
units in 2006 from a few thousand now. No other details have been
released.

The statement said the two cars will have enough local content
to allow them to be sold under the Association of Southeast Asian
Nations Free Trade Area, or AFTA, agreement. It stipulates that
items sold under the trade regime must carry at least 40 percent
local content.

"It is also the intention to quickly localize and make these
vehicles eligible for qualification of ASEAN content for re-
exports to ASEAN countries," Proton's statement said.

The move to sell Volkswagen cars under AFTA is likely to irk
Malaysia's competitors Thailand and Indonesia - the two largest
assemblers in the region of foreign cars such as Toyota, Honda,
Mazda, Ford and General Motors.

Both countries complain that they can't sell their products in
Malaysia because of the government's protectionist policy.
Malaysia imposes a 100 percent excise tax on foreign cars,
forcing people to buy the state-owned Protons.

The statement said the Proton-Volkswagen deal implies a
longer-term, exclusive partnership with neither company opening
discussions with a competitor without prior consultation.

When the deal was announced last week, some analysts expressed
concern that a lack of equity participation by Volkswagen in
Proton would likely hamper the transfer of needed technology to
the Malaysian company. Without an equity stake, Volkswagen would
have little commitment to share its technology, analysts said.

Addressing those concerns, the statement said Volkswagen will
study the technical feasibility of supplying Proton with engines
and transmissions for its new products, so that "wider domestic,
ASEAN, and global markets" can be served. It did not say how long
the study would take.