Bloomberg News

VW Said to Consider Proton Partnership for Malaysia Car Hub

February 09, 2012

(Updates with Volkswagen comment in sixth paragraph.)

Feb. 9 (Bloomberg) -- Volkswagen AG is considering expanding production in Malaysia and has sent senior executives, including management board members, to review Proton Holdings Bhd.’s operations for a potential partnership, a person familiar with the matter said.

Europe’s largest carmaker is considering producing vehicles at Proton factories after its partner DRB-Hicom Bhd. agreed last month to buy 43 percent of the Malaysian company, the person said, declining to be identified because the talks are private.

The high-ranking executives are considering whether the plants are equipped to produce VW models as it considers creating a production hub in Malaysia to target Southeast Asian markets, the person said.

“Volkswagen is expanding because they have yet to have a big presence in Southeast Asia,” Ahmad Maghfur Usman, an analyst at OSK Holdings Bhd., said by phone in Kuala Lumpur. “They can start growing their market share in countries like Indonesia and Thailand.”

Volkswagen has considered a Proton partnership in the past. The German carmaker called off cooperation talks with Proton in June 2010. The two companies also failed to reach an agreement in November 2007 after 12 months of negotiations. The partnership with DRB-Hicom was agreed in December 2010.

“Volkswagen continually examines local market opportunities,” the company said in an e-mailed reply today. “The Malaysian market in general is of high importance for the Volkswagen Group.”

Declining Profit

Selangor-based Proton was set up in 1983 by Malaysia’s former Prime Minister Mahathir Mohamad to steer the Southeast Asian nation’s industrialization plan. The carmaker is headed for its second year of profit declines as it struggles to compete with rivals such as Toyota Motor Corp.

Proton was unchanged at 5.40 ringgit as of the midday trading break in Kuala Lumpur. The stock has gained 12 percent this year after advancing 7.1 percent in 2011.

The Proton deal gives DRB control of two Malaysian car plants with the capacity to make a combined 350,000 vehicles per year. Proton’s vehicles are driven by taxi drivers across Malaysia and are among the cheapest cars sold in the country.

VW started its partnership last year with DRB-Hicom, which also makes vehicles for Daimler AG’s Mercedes-Benz. The two companies agreed to invest about 1 billion ringgit ($332 million) to assemble Passat sedans from parts produced at other factories.

Wolfsburg, Germany-based VW has been expanding production in a bid to overtake General Motors Co. as the world’s largest automaker. VW plans to add a factory in Ningbo, China, by 2014, adding to plants being built in Yizheng and Foshan. A new U.S. assembly site opened last year in Chattanooga, Tennessee.

Mohd Khamil Jamil, managing director of DRB, couldn’t be reached for comment at his office.

--With assistance from Chong Pooi Koon in Kuala Lumpur and Garry Smith and Frank Longid in Hong Kong. Editors: Chad Thomas, Barry Porter

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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