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Sat, Jan 14, 2006 - Page 12 News List

Volkswagen AG scraps strategic tie-up with Proton

AP , KUALA LUMPUR

Shares of Malaysia automaker Proton plunged 20 percent to a four-and-a-half-year low yesterday after Germany's Volkswagen AG scrapped a strategic tie-up that could have helped turn around the Malaysian company.

Proton Holdings Bhd shares opened at 5.10 ringgit (US$1.36), their lowest level since July 2001, after Volkswagen said on Thursday the company would end a partnership signed with Proton in late 2004 to jointly assemble and build cars for the local and regional markets.

At midday, shares had recovered to 5.65 ringgit, down 11 percent on the day.

"Definitely, this is a big blow for Proton. Without a foreign strategic partner, Proton's plans to break into the overseas market or even maintain its local market share would be an uphill task,'' said Gan Kim Khoon, research chief at AmResearch.

In a speech to analysts at the North American International Auto Show in Detroit late Wednesday, VW chief executive Bernd Pischetsrieder said the company had "specific ideas" about its relationship with Proton, whose owners however, "had other ideas."

"Therefore, what we wanted in the cooperation with Proton will not materialize," he said, dismissing any possibility of further joint ventures with Proton. But VW will consider "a few isolated projects ... to support Proton," he said.

The comments were posted on Volkswagen's Web site on Thursday.

Proton spokesman Yusri Yusuf said the company has not received an official word from Volkswagen. Khazanah officials declined to comment.

Set up in 1983 as a symbol of Malaysian self-reliance in heavy industry, Proton used to enjoy protection in the form of high tariffs on foreign cars. But the tariffs have come down under a regional free trade pact.

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