Malaysia's leader: auto maker Proton must rebound

Auto maker Proton will rebound from losses caused by ending alliance talks with Volkswagen AG and General Motors, Malaysia 's leader said Wednesday.

Malaysian Prime Minister Abdullah Ahmad Badawi said he would not rule out any foreign tie-up in the future, but said that the issue of bailing out Proton has not come up as the company had begun to turn around.

"No question of a bailing out. Proton is doing well today ... they have a good program, they have secured exports to India, China, Indonesia and the Middle East," he told reporters on the sidelines of the Association of Southeast Asian Nations' summit in Singapore.

"Proton should be given a chance," he said. "I believe this will be a successful turnaround."

Proton shares plunged 18.6 percent to their lowest level in seven years Wednesday after the government's investment arm Khazanah Nasional said late Tuesday it has stopped talking with Germany's Volkswagen AG and U.S.-based General Motors Corp. about strategic tie-ups.

Money-losing Proton had been in talks with the companies about partnerships to help reverse its fortunes. However, Khazanah said Malaysian officials have recently noted positive developments at Proton, including improvements in domestic sales and exports.

The announcement caught industry observers by surprise and many analysts questioned the long-term viability of the beleaguered automaker.

Abdullah said that foreign alliances were still possible in the future.

"Certainly I don't want to rule out (future tie-ups) but I think Proton will be in a better position to really be a good strategic partner in the future," he said.

Second Finance Minister Nor Mohamed Yakcop said Tuesday that Proton, which saw a loss of 591 million ringgit (US$169 million; euro124 million) in the 2007 financial year, is expected to narrow its losses in the current year, the national Bernama news agency reported.

He added Proton has seen strong recent sales figures, especially of its Persona model, which has sold about 22,000 units less than three months after its launch in August.

Government officials also said late Tuesday the company is introducing new models to raise its domestic market share from its current 31 percent.

Proton long thrived in a protected environment, with high duties on imported vehicles forcing many Malaysians to buy Proton cars. Duties have been slowly lowered in line with a regional trade agreement, and more Malaysians are buying imported vehicles.