It was a tale of two companies in Malaysia this year, as one national auto maker experienced growth and the other sunk further into the abyss.

Perusahaan Otomobil Nasional Sdn Bhd (Proton) lost its lead over rival Perusahaan Otomobile Kedua Sdn Bhd (Perodua) for the first time ever when Perodua overtook Proton in sales for the year’s first half.

Perodua credits much of its success to its Daihatsu Motor Co. Ltd. joint venture. The Japanese small-car maker, owned by Toyota Motor Corp., provided access to product development and manufacturing expertise.

Proton’s lack of fresh models has seen its market share shrink to 24.2% so far this year, a stark contrast to 1993, when the auto maker dominated with 57% of the Malaysian market.

Proton in June reported fiscal-year earnings of 47.02 million ringgit ($12.7 million), down from MR442.44 ($119.5 million) the previous year and one of the company’s lowest profits in its 20-year history.

Struggling with a dearth of new product and a major management shakeup, Proton’s search for a global partner has been a protracted process.

Talks failed with Volkswagen AG earlier in the year, as the Malaysian government repeatedly rebuffed VW’s takeover attempts. The German auto maker was troubled that anything less meant it would have to utilize Proton’s uncompetitive local supplier network.

Proton inked a less significant pact with Japan’s Mitsubishi Motors Corp. to build a vehicle co-developed by the two, but badged a Proton, for the domestic market by early 2007.

Proton also signed a memorandum of understanding with PSA Peugeot Citroen of France in September to study a limited alliance in the areas of vehicle development, production and distribution and supplier development.

Despite such efforts, analysts remain skeptical such linkups will solve Proton’s overall problems or increase its exposure to regional export markets.

“I’m not convinced whether Peugeot has enough experience in that region” to help Proton recover its market-share lead, says Ashvin Chotai, director-Asian automotive industry research for Global Insight Inc.

Peugeot’s sales in Europe are weakening. And while it is a player in the explosive Chinese market, it remains a minor one. Proton’s main roadblock is the strength of the Japanese auto makers throughout Asia.

“Without protectionism, we expect the Japanese to make great inroads (in Malaysia),” Chotai says. “In a true market, all the odds are stacked in favor of the Japanese in that part of the world.”

Although Perodua performed well in 2006, Malaysia’s total auto sales are expected to fall from an earlier forecast of 560,000 units to 520,000, a 6% decline, leading to calls from the auto industry to relax financing and establish a used-car scrap policy to spur sales.

– with Mack Chrysler in Japan and William Diem in Paris

cschweinsberg@wardsauto.com