07 June, 2010

Proton says Volkswagen tie-up talks off !

Malaysian national car-maker Proton said Volkswagen AG will not collaborate with it because the German automaker "has other priorities," the second time talks between the two have failed, sending Proton's shares down more than 5 percent.

Proton said in a statement that Volkswagen "would be an interesting collaboration partner," but Volkswagen has declined during preliminary talks to partner up with Proton.

"Volkswagen confirmed that it currently has other priorities," the statement said. It did not elaborate, and a spokeswoman could not immediately give further details.

Proton said it would continue to work with other partners such as Mitsubishi and would aim to expand domestically and regionally.

Meanwhile,Proton Holdings Bhd., Malaysia’s state-controlled automaker, is heading for its biggest daily decline in 13 months in Kuala Lumpur trading after Volkswagen AG, Europe’s largest carmaker, ended partnership talks.

Proton shares slid as much as 5.9 percent after the company said a potential collaboration with Volkswagen was scrapped because the German carmaker had “other priorities.” The Southeast Asian company “acknowledges” Volkswagen’s decision and will forge ahead with its current strategy, including a product collaboration with Japan’s Mitsubishi Motors Corp.

Proton is seeking foreign partners to help bolster exports and develop new models to compete with Toyota Motor Corp. and Honda Motor Co. in its home market. The stock was down 5.9 percent to 4.45 ringgit as of 3:13 p.m. local time, outpacing the benchmark FTSE Bursa Malaysia KLCI Index, which fell 0.6 percent. Proton closed down 8.5 percent on April 27, 2009.

Proton’s need for a strategic partner “is crucial at this juncture before Proton gets left further behind,” with plans to enter the export market, OSK Research Sdn. analyst Ahmad Maghfur Usman said in a report today. “Innovativeness in the automobile industry is moving rapidly,” he said.

OSK cut its share price forecast to 5.67 ringgit from 6.94 ringgit, describing the Volkswagen pullout as a “negative development” that might impact earnings. It maintained its “buy” rating on the company, the report said.

“Talks that might have been taking place recently have not proceeded anymore and there will not be further talks,” said Peik Von Bestenbostel, a spokesman for Wolfsburg, Germany-based Volkswagen, in a telephone interview today. He declined to comment further.

This is the second time the companies have abandoned talks. In November 2007, Proton ended more than 12 months of negotiations with Volkswagen to give itself more time to reverse five quarters of losses.

Proton, formed in 1983 by then-premier Mahathir Mohamad as an emblem of industrialization, made a profit of 22.8 million ringgit ($6.8 million) in the three months ended March 31 compared with a loss of 323 million ringgit a year earlier. Sales climbed to 2.26 billion ringgit from 1.4 billion ringgit.

“Proton needs to secure a strategic alliance in order to optimize their plants’ utilization and ensure long-term survival,” RHB Research Institute said in a report today.

Proton will focus on penetrating other Asian markets in the “near future” and remains “committed” to expand in China with Youngman Automobile Group in China, it said in the statement.

It is also discussing possible technical alliances with Renault SA and the former General Motors Corp. to help it make new models, Proton said in April 2009.

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