Just when everyone thought struggling Malaysian carmaker would ink the deal with foreign partner Volkswagen, the bleeding Proton Holdings Bhd (KLSE: PROTON, stock-code 5304) suddenly call off the negotiation. Although this was the second time in two years that VW-Proton talks over cooperation have ended without a deal, VW said it still planned to build up a production base in Southeast Asia.

According to Reuters, Malaysia announced on Tuesday that it would no longer look for a foreign partner for the ailing Proton for now and added that state investment firm Khazanah Nasional had stopped its talks with both Volkswagen and U.S. rival General Motors Corp. (NYSE: GM, stock).

Reuters further reported that the loss-making Proton, set up in 1983 by then Prime Minister Mahathir Mohamad, was for a long time state-protected due to policies aimed at giving extra business and employment opportunities to the country’s majority ethnic Malays. At one point, it sold more than half of all new cars in Malaysia. But since barriers to competition started coming down, it has lost market share to international rivals and even to domestic carmaker Perodua.

In a statement VW said “Volkswagen will now independently examine other possibilities to enter the ASEAN market and further strengthen its sales operations in the region including Malaysia.” Actually besides Malaysia, the nearest location that Germany’s Volkswagen (FRA: VOW) could try its luck is Thailand.

Malaysian Second Finance Minister Mohamed Yakcop said rising domestic sales and exports should help tide Proton over its current difficulties. An industry source said the government’s sudden change of heart could be due to factors such as a fear of ceding management control of Proton to Volkswagen and intense lobbying by Proton rivals who fear VW could flood the market with VW cars.

FinanceTwitter thinks both parties should stop beating aroung the bush and reveals the real reason, not that the secret is too big to be known by people who can smell it. And what could the exact reason for the deal to be stopped abruptly? It’s the coming general election silly you. As stated above all foreign carmakers knew who’ll get affected the most should the Proton falls into the control of Volkswagen. The matter is too sensitive to be announced now. Just imagine how the oppositions would sing the song with heads rolling down the chopping board with a foreign company dictates the future of national car-maker, never mind how effective the foreigner has been in the past.

So, just wait for the general election to past and you’ll get the official announcement before you can even blink your eyes. But isn’t VW wasting too much time playing to the tune of Malaysian government? Probably they could just setup their own plant in Thailand and start the production lines.

Other Articles That May Interest You …

• Volkswagen BOSS to visit Malaysia to conclude deal
• Volkswagen sets to Control PROTON, in 5-years?
• 5 Reasons Why You Shouldn’t Investing Proton Stocks

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November 20th, 2007 by financetwitter

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