Daihatsu is negotiating with Perodua to increase its shareholding beyond the present 25 percent, Agence France-Presse (AFP) reported.

Prime Minister Mahathir Mohamad confirmed to AFP that negotiations are ongoing but no deal has yet been reached.

The New Straits Times quoted the prime minister as saying that the government would only allow Daihatsu to take a majority stake in Malaysian production of export market cars.

"There have been negotiations and nothing has been finalised. Of course we want to retain that part of Perodua that is the manufacturing of cars for the local market," Mohamed reportedly said.

"If they (Daihatsu) want to have a share or even a majority share in the production of Perodua cars for the ASEAN (Association of Southeast Asian Nations) or other export markets, we have no objection to that."

AFP said that Daihatsu Japan owns a 20 percent slice of Perodua - Malaysia's second largest national car maker - plus another five percent through its local subsidiary Daihatsu (M) Sdn. Bhd. Japan's Mitsui Co also owns seven percent.

Local shareholders are UMW Corp. (38 percent), Med-Bumikar Mara (20 percent) and PNB Equity Resource Corp. (10 percent).

The New Strait Times said that Daihatsu together with parent company Toyota plans to make the Perodua plant in the central state of Selangor a regional assembly centre for small cars in preparation for the ASEAN Free Trade Area (AFTA).

Perodua produces a range of small, economical cars based on Daihatsu designs. Rival Proton, whose models are based on Mitsubishi products, leads the Malaysian market with a 65 percent share.

Import tariffs for most products will be reduced to a maximum of five percent under AFTA by 2003. Malaysia has obtained a two-year reprieve for its auto industry until 2005, AFP said.

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