Reuters reports that Volkswagen is in talks with Malaysian-based Proton Holdings for a partnership that could give the German manufacturer a foothold in Southeast Asia's fast-growing auto market. The report cited as source a Volkswagen spokesman.

"We're talking with Proton about the possibilities of a co-operation," a spokesman for Volkswagen in Germany said, declining to provide further details, Reuters reported.

Earlier on Friday, The Asian Wall Street Journal reported the two were negotiating, citing unnamed sources, but it was not clear whether a prospective deal would involve VW taking a significant stake in Proton - which has nearly half of the Malaysian market.

A tie-up could give Volkswagen access to Proton's production capacity, which could be used to make cars for sale in Southeast Asian countries, it said.

Proton is rapidly losing share in its home market as protection is gradually removed under AFTA trading rules and the company's profits have slumped. As capacity utilisation drops at its plants, it has been speculated that the company would become interested in getting a partner to utilise it in some way.