Volkswagen drops plan to build with Proton

FRANKFURT - Volkswagen, the world's fourth-largest carmaker, has scrapped plans to co-operate with Malaysia's state-controlled Proton to build and sell VW brand cars for the local market.

The move is seen as a setback for VW's plans to expand in the dynamic economies of Southeast Asia at a time when sales in its biggest export market, China, fell nearly 14 per cent in 2005. It expects to only break even in China in 2005.

"We had a specific idea how we wanted to proceed there. Unfortunately, the Malaysian Government, (Malaysia's state investment arm) Khazanah and Proton had different ideas. Therefore what we wanted in the co-operation with Proton will not materialise," chief executive Bernd Pischetsrieder said.

In October 2004, the Wolfsburg-based carmaker said it had signed an agreement for a long-term strategic partnership with Proton that would help it enter the Asean car market without significant investments.

Pischetsrieder said while it was still in talks with Proton, there were no more benefits to be attained out of the partnership for Volkswagen.

"What we are investigating now is whether in a few isolated projects we can support Proton - and I'd like to put the emphasis on exactly that word, to support Proton, and not to have any joint programmes or joint ventures or so but to support Proton," Pischetsrieder said.

- REUTERS