VW any agreement to buy stake in Proton is still 'far away;

VW any agreement to buy stake in Proton is still 'far away;

Jasbant Singh, Associate Press, Kuala Lumpur, Malaysia

Germany's Volkswagen AG said any agreement to buy a stake in Malaysian national car maker Proton is still "far away," but the two companies were still in talks to work together to make cars in Southeast Asia, a news report said on Thursday.

Speculation has been rife that Volkswagen will buy a controlling stake in the struggling automaker and that the deal could come with management control of Proton.

The German car maker said it is in talks with Proton and Khazanah Nasional - the government's investment arm that controls Proton - to jointly produce new models for the lucrative Malaysian and Southeast Asian markets, the New Straits Times reported, citing an unidentified Volkswagen official.

"We are still far away from any agreement on the partnership," the official told the Straits Times. "This is with respect to the operational collaboration as well as any financial involvement of the VW Group."

Proton officials were not available for comment.

Media reports have said Khazanah, which owns 42.7 percent of Proton, is in talks with the Wolfsburg, Germany-based automaker to sell up to 30 percent of the Malaysian company.

Khazanah has confirmed that discussions were being held on Proton's "proposed alliance with Volkswagen" but said it does not have any plans yet to divest its existing stake in Proton.

The Straits Times said Volkswagen and Proton have agreed to launch two car models, the first by the end of this year.

Talks between Khazanah and Volkswagen underscores a government plan to end its control of state-owned companies facing competition from overseas.

For more than two decades, Malaysia poured billions into Proton to turn it, with Japanese help, into the country's top selling car behind stiff protective barriers.

But globalization is forcing Malaysia - Southeast Asia's biggest passenger car market with annual sales of 487,000 vehicles - to change. Proton is unable to match the quality of foreign competitors - something that is exposed with the lowering of import barriers.

A deal with Volkswagen will give Proton access to German technical and management know-how.

Volkswagen, meanwhile, will get an opportunity to grow its market share in Asia, which last year accounted for just 6.6 percent of its 5.1 million sales.,

Proton and Volkswagen last year agreed to work together, without committing to an equity relationship.