Malaysia stops cooperation talks with auto-makers VW, GM

After Malaysia’s government stopped talks on cooperation with Volkswagen AG and General Motors Corp., the national car-maker Proton’s shares dropped to the lowest level in seven years Wednesday.

The announcement caught industry observers by surprise Tuesday and brought ratings downgrades as many analysts questioned the long-term viability of the beleaguered auto-maker.

Proton shares tumbled as much as 19.4 percent to 3.98 ringgit during Wednesday's trading, their lowest level since October 2000. The stock ended the day at 4.02 ringgit.

RHB Research downgraded the stock to "Underperform" from "Trading Buy."

CIMB Research lowered its target price for the stock to 3.50 ringgit from 4.52 ringgit. Target prices refer to predictions about where the stock price is headed.

State investment arm Khazanah Nasional, which owns a controlling stake in Proton, said in a statement late Tuesday that the company has "discontinued negotiations" on possible alliances with Germany's Volkswagen and U.S. carmaker GM.

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.

Proton reported a loss of 591 million ringgit (US$169 million; EUR124 million) in the 2007 financial year.

Government officials said late Tuesday the company is introducing new models of cars 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.

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Author`s name Angela Antonova