German firm said to be close to buying Malaysian car maker's manufacturing division
20 March 2007

Volkswagen is close to taking over control of Proton's manufacturing arm, according to reports in the Financial Times. Any VW takeover of Proton's car making division will be eyed nervously in the UK because Proton Holdings, ­which owns the manufacturing arm, also has ownership of Lotus. Kevin Rose, head of international sales at VW, told the FT that it was "very close" to closing a deal. The move will be rubber-stamped before the end of the month. VW will build a "new small sedan" and other models (possibly including the Passat) specifically targeted at the Asia-Pacific region. Sources suggest the sedan is a rival for the Renault/Dacia Logan aimed at developing markets. VW is mainly interested in the Proton production facilities and there¹s no news on whether Proton will attempt to build a new generation of cars using VW architecture. Falling sales of Proton-badged cars and continuing losses at the maker have put the brand in a perilous position. One auto analyst quoted by the FT said that "time was running out" for the company giving it "between six and 12 months" in its current form. Sales are expected to be around 120,000 in 2006 and the share of the recently deregulated home market is down to 36 per cent. Import tariffs on imported new cars will fall to just 5 per cent in 12 months' time further undermining Proton's home-market position. Proton is likely to loose around $60m USD in 2006. There are doubts as too how long Proton (which is 52 per cent state-owned) can continue its car-making activities before sales fall below a sustainable level. Lotus sources say that VW's move does not indicate any particular threat to UK maker's current position because it is owned by Proton Holdings. However, analysts say there has to be a question mark over Proton Holding's long-term commitment to Lotus (especially in terms of further investment) considering the losses the manufacturing division is suffering and doubts over the long-term survival of Proton as an independent car maker.

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