Proton said today that plans floated by Volkswagen to exert control over the struggling Malaysian car maker had been "inappropriate", after news that German firm had ditched a possible partnership.

Proton said both parties had agreed in October 2004 to explore a collaboration for "mutual benefits", but said Volkswagen had then started talking about a take-over.

The alliance would have allowed "VW AG to participate both in the Malaysian and Asean markets more effectively. It was clearly not a situation of one party suppporting another," said Proton.

"Over time, however, it has become apparent that VW AG seeks to exercise control over Proton's facilities and future development," it said.

"This would have compromised Proton's independence and would be highly inappropriate for Malaysia's national car company."

Reports late last year said that Volkswagen could take a 40 percent stake in Proton Holdings manufacturing unit, but that the German car maker wanted management control.

Proton's chairman Mohamad Azlan Hashim said at the time that it had made a proposal to Volkswagen on conditions for purchasing a stake, including a stipulation that Proton would retain board control.

Shares in the loss-making Malaysian car maker plunged Friday after news Volkswagen had scrapped the plans for the alliance seen as crucial to Proton's future.

A deal would have given Proton, which has been losing market share in recent years over foreign competition, the chance to address concerns over the quality of its vehicles and a lack of innovation.

Alliance collapsed

Volkswagen chief executive Bernd Pischetsrieder said Thursday that the alliance under negotiation for the past year had collapsed and that any future cooperation would be very limited in scale.

But Proton said that the German company in a meeting last month and in correspondence afterwards had asked for more time to decide on "the possibility of collaboration in alternative forms."

It said a mid-January time-line had been settled for a response from Volkswagen, and that it still had not received any formal notification on the deal.

"It was also agreed, that given the nature of the proposal and the listed status of the parties involved, any decision to conclude negotiations, would only be announced either concurrently or through a joint statement," Proton said.

Proton used to sell six out of every 10 new cars in Malaysia, but foreign competition has seen its market share decline from 60 percent in 2002 to 48 percent in 2003, and then 44 percent in 2004.