Volkswagen has reached an agreement with Malaysian car maker Proton Holdings Bhd. to enter into a long-term strategic partnership.

High-ranking representatives of the two companies signed a memorandum of understanding on Tuesday at Volkswagen's head office in Wolfsburg, Germany, Reuters reported.

Currently, there are no plans for Volkswagen to take a shareholding in Proton and the agreement stipulates that both parties will retain their full corporate independence.

Reuters said the collaboration will enable Volkswagen to establish a base for servicing the markets of the southeast Asian region, without having to make extensive capital investments. The primary aim is to build up an automobile industry of global market standard in Malaysia, exporting to other countries in the region as well as supplying the local market.

Opportunities for joint vehicle development will also be closely examined. As a first step, Volkswagen AG and Proton have agreed to begin preparations for the assembly of kits of two models, the report said.

The collaboration will initially involve only the Volkswagen brand. The goal is to launch the first models assembled in Malaysia locally by the end of 2005.

The initial sales target for 2006 is to top 15,000 units. In 2003, Volkswagen sold over five million cars.

A key factor in the strong growth prospects is that Proton already operates an efficient dealership network that can be utilised at least in part for sales of Volkswagen vehicles, Reuters noted.

At the same time the aim is also to build up the supply industry in Malaysia, enabling some of the parts required to be procured from local manufacturing sources.