KUALA LUMPUR -- "National" vehicles are multiplying like rabbits these days in Malaysia. And none are VWs.

An experiment begun in 1985 with a state-owned company to produce the Proton Saga, a rebadged Mitsubishi model, not only has spawned additional models but a second and third "national" car plus a "national" van. And the product lineup isn't complete.

A "national" motorcycle with Kawasaki ancestry debuted last month, and a "national" sport/utility vehicle, commercial truck and bus are due sometime later.

To keep up with the maturing market, Malaysia's second national car was launched in late 1994 in a tieup with Japan's Daihatsu Motor Co. Ltd. The 660-cc Kancil, produced by Perodua Manufacturing, was a quick success, with sales last year of 39,900 -- 17.7% of the car market.

Add in 149,600 Proton models sold, and the two national cars captured 80% of Malaysia's 1995 passenger car market. Total vehicle sales last year in Malaysia increased 43% to 285,792 units, almost double 1992's tally; nearly eight out of every 10 sold were passenger cars.

Tastes are now broadening, the market is segmenting and two government brands no longer satisfy motorists. Last spring, two more were launched: the 1.1L Proton Tiara, based on the Citroen AX, and Perodua's 1.3L Rusa minivan, another Daihatsu derivative.

"Every few weeks the government seems to be breaking into a new market," says Colin Thom, director of Ford Motor Co.'s International Business Development in Malaysia.

No one should be surprised. National vehicle manufacturing has been the designated catalyst in Prime Minister Datuk Siri Mahathir Mohamad's master plan to industrialize Malaysia as quickly as possible.

Because Mr. Mahathir provided the inspiration and impetus behind the national vehicle programs, outsiders were bewildered when the government's share in the holding company the controls Proton Motors Ltd. was sold at a bargain price last year to businessman Datuk Seri Yahaya Ahmad. Says a Kuala Lumpur expert: "Dr. Mahathir practically gave Yahaya the shares."

The objective, insiders say, was to jump-start a sleepy company, but Proton still operates with all the advantages of a government-owned company. These include the original special exemptions from duties and excise taxes that permit sticker prices one-third to one-half below its competitors.

An entry-level 1.3L Proton Saga Iswara sedan lists for 37,595 rupiahs, or $15,345, compared with $29,512 for a 1.3L Toyota Corolla and $33,417 for a 1.5L Honda Civic.

While the aim is obviously to have models in place to satisfy almost every taste, Proton remains the spearhead both at home and abroad. But not everyone is a true believer. For example, Seow Choong Liang, managing director of Kleinwort Benson Research (Malaysia), says bluntly: "Proton is only half-way there in carmaking, neither infant nor adult, and not really ready to export."

While that may be so, the company is steaming full speed ahead with ambitious expansion plans.

By 1998, annual capacity of the original Shah Alam plant outside of this capital city will jump from 160,000 to 230,000 vehicles. And a new plant in Proton City, 56 miles (90 km) from here, is expected to reach 250,000 in 2000, mostly for export.

With scheduled capacity approaching 500,000, Proton plans to export 30% by then, up from a current 15%, mainly to small markets such as the Philippines where semi-knockdown assembly has begun.

Yet industry experts report that in the U.K., Proton's biggest overseas market, the company has to sell cars at a loss -- because its technology is so old.

Yet, whatever its shortfalls, the company retains its edge. "Even though Proton prices have increased 50% in recent years, sales are constrained by capacity, not demand," explains Chung Yee Wah, an analyst with James Capel (Malaysia), citing waiting periods of four to six months for delivery.

No fewer than 23 different foreign makers are scratching for whatever sales national vehicles don't snap up -- barely 100,000 units in 1995.

Malaysia has 10 assembly plants, all tiny except Proton's, and all struggling with mandatory local sourcing, roughly 50%.

Foreign assemblers pay 42% duties on completely knocked down kits compared with 13% for Proton.

Duties and taxes on completely finished vehicles vary from 140% to 200%, depending on engine size, and CBU sales aren't allowed to grow more than 5% annually.

Despite these handicaps, automakers watching from the outside remain surprisingly upbeat and optimistic. Their rationale: National cars have created a market for foreign marques as customers trade up.

"Malaysia's auto industry is entering a new phase," says Mr. Seow. "Ten years ago, national cars had strong political appeal. Today nobody cares about origin. Price and image are playing a more important role."

Incomes are high and rising. Per-capita GDP, already $4,300, is projected to reach $6,035 in five years.

"Affluence will increase. When we examine the market by segments, we find we can compete in 35% of them," says Dato Michael Lim, managing director of UMW Toyota Motor in Kuala Lumpur.