Association likely between Peugeot and Proton

Europe's second-biggest carmaker, PSA Peugeot Citroen and Malaysia’s Proton are contemplating a partnership that may include manufacturing and distribution agreements, officials of the two carmakers revealed on Monday.

The companies said that "The areas being studied will focus on offering benefits to both parties in the ASEAN region and elsewhere.”

As of now both the companies are grappling with competition. The agreement is expected to increase PSA’s car sales in Malaysia and develop its business in the region. Proton, on the other hand would benefit from the technological know-how of PSA and make the best use of its production capacity.

According to source, the two auto manufacturers have signed a letter of intent to evaluate and study a possible co-operation in Paris. The evaluation, will focus on product development, manufacturing, distribution, contract assembly, vendor development and quality improvement.

Proton needs to find a strong foreign partner to help revive its financial state, that is why car makers made a second attempt to form a strategic alliance with a European car maker. Earlier this year talks with Germany's Volkswagen AG failed.

The Malaysian government opened the domestic market to foreign rivals under free trade deals, which meant stiff competition for Proton.

The company said that it was reviewing its performance targets for its financial year. Last month it reported a 58.6 million ringgit ($A21.8 million dollar) loss in the first quarter to June.