Malaysia's status as an auto manufacturer is in jeopardy if national car firm Proton is surrendered to foreign control, Proton adviser and ex-premier Mahathir Mohamad has warned.

Mahathir, who created Proton in 1983 as part of Malaysia's drive into heavy industry, also said the carmaker should not sell ailing British arm Lotus group but must aim to cut cost and improve quality and technology to be competitive.

In an interview with The Edge weekly, Mahathir acknowledged that a foreign partner for Proton was "crucial because we cannot come up with sufficient technology for ourselves."

But "the end result of selling Proton, stopping the national car, would be Malaysia as an assembler of motor cars for Malaysia alone," he warned.

"Not even for the rest of the world because it is cheaper to assemble cars in other countries where cost of labour is low," he said, adding that many people would also lose their jobs and supporting industries would shut down.

Equity stake

Analysts have said it would be a long hunt for Proton unless the government was willing to trade in its dream of a national car industry for a pragmatic foreign tie-up.

But Mahathir, recently appointed adviser to the company after retiring last October, said he believed foreign carmakers would still be keen in an alliance without a majority stake because "Proton's capabilities are quite attractive."

"About four or five (foreign) companies have been talking to Proton," he said but declined to give details.

State investment arm Khazanah Nasional, the single largest shareholder, is said to be considering plans to allow a foreign carmaker to hold up to 20 percent equity in Proton after its Japanese partner Mitsubishi Motors bailed out.

Trading house Mitsubishi Corp. still holds another 7.9 percent in Proton and is believed to be in talks to sell it to Khazanah.

Mahathir said Malaysia was not losing out to Thailand, which has emerged as a regional assembly hub for car manufacturers.

Despite government protection, he said Proton can be considered a success because it was making money and could build its RM1.8 billion new plant without injection of new government capital.

Mahathir said he would "not advise the sale of Lotus unless it is haemorrhaging very badly and it is not contributing anything".

High tariffs

He also defended the government's high taxes that made cars in Malaysia more expensive than those in Japan and South Korea, saying it was partly to prevent traffic jams.

"We have such high prices because we don't want to sell (too many) cars ... if we reduce the price of Proton cars and other cars, we will not be selling 450,000 cars a year. We would be selling a million cars a year. We just can't keep up with it," he said.

Proton used to sell six out of 10 new cars in the country but for the first time in years, its market share shrank to 49 percent in 2003, from 60 percent in 2002, as sales tumbled to 155,420 units.

Proton has been protected for years by high tariffs on foreign cars but it will lose its edge under AFTA, where import tariffs for most products in the region were cut to below five percent from last year.

Malaysia obtained a two-year reprieve for its auto sector until 2005 but it has said it would further defer reducing duties. - AFP