A Proton-badged vehicle developed under a new joint venture between Mitsubishi Motors Corp. and Proton Holdings Bhd, Malaysia's national car company, is slated to hit the market early next year.

The recently announced JV ends Proton's search for an international partner to help it face the challenges of a liberalized domestic automotive market after talks with Volkswagen AG collapsed.

Mitsubishi already supplies components for Proton Wira.

Discussions ended last month after the Malaysian government reportedly blocked VW's plan to take control of Proton. (See related story: New Managing Director Pushes Proton Toward Drastic Changes)

Although Proton rejected VW's request for control of its facilities and future development, the company says it was surprised by VW's decision to scrap their proposed collaboration to build cars, as it had not received any formal notification to that effect.

Proton continues to maintain VW had asked for more time to decide on the possibility of collaboration in alternative forms. A mid-January timeline was agreed to for a response.

But VW CEO Bernd Pischetsrieder in January told an investment conference in Dearborn, MI, his company had aborted the proposed collaboration to build and sell VW brand cars.

The Malaysian Edge Daily newspaper reports analysts believe one of the major factors leading to the failed talks is the inefficiency of the local parts vendors.

“The biggest problem with Proton is the vested interest in the local parts vendors,” it quotes an unnamed analyst as saying.

“VW would not want to work with uncompetitive vendors. As the country is opening up the industry, inefficient auto parts suppliers need to be cut off. A lot is at stake, and Proton may not be able to cut them off.”

Reports do not specify Mitsubishi's position on the matter. However, Proton Managing Director Zainal Abidin Tahir tells the media the two auto makers are working together to introduce the new model in 12 months.

Additionally, Mitsubishi may assemble some of its cars in Malaysia at Proton facilities.

“That would be part of optimizing Proton's manufacturing facilities, so the assembly of Mitsubishi cars is a possibility,” Zainal says.

Proton's plant in Tanjung Malim has the capacity to produce 300,000 cars annually but currently builds 100,000.

The new pact also includes the supply of components between Proton and Mitsubishi, technical support for production engineering and quality control. Mitsubishi already supplies Proton with engines and transmissions for the Iswara, Wira, Satria, Arena and Perdana models.

“This is not only, we hope, to be one way,” says Zainal. “Perhaps one day we could also share our platform with Mitsubishi, not only for domestic sale but for export.”

He says the agreement means Proton can diversify quickly its passenger-car range as well as fill in gaps in its product lineup, although the JV will not involve an equity stake.

“Proton being small, I don't see any reason why it should not be collaborating,” Zainal says. “That's the journey that we would like to go.”

With this in mind, Proton is looking at additional alliances with auto makers in China and India. “These two markets, we can't ignore,” he says. “China, we have tried. It's being re-looked at. We have identified several parties in China.

“In India, we will start talking to several parties. In fact, they have approached us,” he says without being specific.

Mitsubishi, which has suffered heavy financial losses in the last several years, sold its 7.93% stake in Proton in 2005, ending an investment that had lasted two decades.

Earlier, Proton signed an agreement with Malaysia's national oil company Petroliam Nasional Bhd (Petronas) to explore the development of larger engines and environmentally friendly alternative-fuel systems, as well as the use of Petronas E01 engine technology.

The auto maker also says it will continue to work with Volkswagen on specific projects that include the supply of products and components by VW.