Volkswagen may abandon plans to build an eco car plant in Thailand in favour of developing a more comprehensive alliance with Proton in Malaysia, according to Vallop Tiasiri, president of the Thailand Automotive Institute (TAI).

Volkswagen applied for Thai government tax privileges under the eco-car programme in 2007, but the production licence has yet to be awarded pending clarification of key outstanding items. The German carmaker has since restarted negotiations with Proton Holdings over a capacity and technology sharing alliance which would reduce the scale of the German company's investment requirements in the ASEAN region.

Volkswagen does not have a manufacturing presence in the ASEAN region and will need to start from scratch unless a final agreement can be reached with Proton.

Vallop fears that Volkswagen may seek to establish a single production centre in the ASEAN region and that Proton's massive over-capacity at the Tanjung Malim plant in Perak state is becoming an increasingly attractive option for the German carmaker.

"Malaysia has the largest passenger car market in the region whereas Thailand is primarily a pickup truck market", Vallop said. "In addition, Malaysia has production facilities ready for VW to start production immediately if an agreement is reached". Malaysia will join Thailand, the Philippines and Indonesia in enjoying zero tariffs for local automotive products from January 2010. 

Proton's Tanjung Malim plant cost MYR1.8bn (around US$500m) to build and finally came on stream in 2004. It has 180 precision robots and its flexible lines can produce different models in sequence. The plant has the potential capacity to produce 1m vehicles per year on a full-shift system and with some additional investments. Capacity at the older Shah Alam plant near Kuala Lumpur is 230,000 units per year.

By contrast, Proton produced just 157,643 vehicles in Malaysia last year, of which 66,658 Persona models were produced at Tanjung Malim. Total vehicle sales in the ASEAN region exceeded 2.1m units last year.

Tony Pugliese