Malaysia’s government will miss a self-imposed Saturday (31 March) deadline to finalise a foreign alliance for national car maker Proton, a government minister was reported to have said.

This is another blow to the fortunes of the money-losing company, The Associated Press (AP) noted on Friday.

The government was still evaluating strategic partners for Proton Holdings, and cannot meet the 31 March deadline to announce a partner, second finance minister Nor Mohamed Yakcop told national news agency, Bernama, on Friday, according to AP.

The Associated Press said the news did not come as a surprise because it had appeared almost certain in recent weeks that the government’s talks with possible strategic partners, including Volkswagen and General Motors were not bearing fruit. PSA Peugeot Citroen had already pulled out of talks, the report added.

AP said that analysts and industry watchers have warned that Proton is doomed if it does not get a reputed foreign company to pull it out of losses and turn it around with new technology and better products.

Earlier on Friday, Singapore’s The Straits Times daily quoted an unnamed senior Malaysian government official as saying talks between Volkswagen and Proton had fallen through, AP added.

Volkswagen felt a production platform in Southeast Asia was not a priority as it wanted to focus on its operations in India and Russia, the newspaper said, according to the news agency.

But AP, citing a Dow Jones Newswires report from Frankfurt, said Volkswagen had denied that, saying in a statement on Friday that it remained in talks with the Malaysian government.

Bernama said Nor Mohamed did not comment on The Straits Times report, AP added.

AP noted that an competitive domestic car market has taken a toll on Proton, which for years had thrived in a protected environment – high taxes imposed on imported foreign cars that forced ordinary Malaysians to buy locally made Protons despite their inferior quality.

But, in recent years, the taxes have been lowered in line with a regional trade agreement, and Malaysians have shown a strong preference for imported vehicles, the news agency said.

Malaysia is Southeast Asia’s biggest new car market, with about half a million units sold each year, AP added.

But, since the beginning of this decade, Proton’s share of the domestic market has almost halved to 32%, from nearly 60%. By the close of the quarter ended 30 September, 2006, sales had fallen 29% year on year.

For the quarter ended 31 December, 2006, Proton reported a net loss of 281.5m ringgit ($US80m), compared with a net profit of 86.5m ringgit a year earlier, the Associated Press said.