Proton shares tumble after Malaysia drops talks with Volkswagen
Wed, Nov 21, 2007
AFP
>KUALA LUMPUR, Nov 21, 2007 (AFP) - Shares in ailing carmarker Proton sank 10.5 percent on Wednesday after Malaysia announced it had shelved long-running alliance talks with Germany's Volkswagen.
At 10:44 am (0244 GMT) Proton shares fell 54 sen to 4.40 ringgit (1.33 dollars), while the overall Kuala Lumpur Composite Index fell 0.4 percent or 5.15 points at 1,366.55.
On Tuesday Malaysia's state investment arm Khazanah Nasional, which controls Proton, said it had discontinued negotiations with Volkswagen.
The German car maker said it and the Malaysian government had for the time being decided "to shelve their joint talks" about the alliance.
The talks began in October 2004 aiming at revitalising Proton, which experts say has suffered from stiff competition, a lack of new models and a reputation for poor quality.
Malaysia's second finance minister Nor Mohamed Yakcop said Tuesday Proton's fortunes have turned around in recent months.
Sales of Proton cars have improved, especially the Persona model, which chalked up bookings of about 22,000 units at the end of October after it was launched in mid-August, Nor Mohamed said.
The announcement caught analysts by suprise who insist Proton needs a foreign partner to remain competitive in the long-term.
"We were taken aback by this decision as we view the recent improvement in sales as a short-term rebound," said Kelvin Goh, analyst at CIMB Investment Bank.
Proton's longer term prospects remain murky as it lacks branding and the technological know-how, said Goh, who described the news as a "disappointing development".
Low Yee Huap, analyst at RHB Research said Proton had not addressed its problems such as falling sales and lack of new models.
"Although the turnaround is evident on the back of strong Persona car sales, we believe Proton is not out of the woods yet," he said.
Proton's prospects "remain rather bleak" because the carmaker lacks a new model development programme and is facing intense competition both from domestic and foreign players, he said.
A Volkswagen spokesman told AFP in Frankfurt that the group was now looking for "new commitments" in Southeast Asia.
"The company continues to pursue the goal of developing a successful foundation for production and distribution in Southeast Asia for years to come," the firm said.
