Malaysian carmaker Proton said today it is in talks with Chinese manufacturer Chery on a deal to assemble and distribute Proton and Chery models in China, Malaysia and elsewhere in Southeast Asia.

Proton said in a statement that the two firms would work on a feasibility study over the next three months "to evaluate possibilities and opportunities for... providing assembly services and distribution of vehicles".

The government has urged Proton to join forces with strong foreign partners, saying the national car sector cannot survive on its own and must gain entry to the booming auto markets in China and India.

Newspaper reports have said that the Chery tie-up would give the firm a manufacturing base in Malaysia in exchange for allowing Proton cars to be produced in China.

Saturated market

Proton's manufacturing director Kamarul Zaman Darus said the Malaysian market was already saturated, with high ownership levels and stiff competition from foreign imports.

"Therefore going outside is the key. So China, India and ASEAN would be our future key markets," he told reporters at an auto conference.

"We are looking at various types of alliances that can bring value to us while not sacrificing our own values."

Chery is best known for its QQ mini-car, which was the subject of a recently settled lawsuit initiated by Detroit-based General Motors over accusations it had copied its own Spark model.

Proton's search for partners follows the collapse of negotiations in January with Volkswagen as a potential single strategic partner.

Alliance with foreign firms

The struggling national carmaker is now believed to be pursuing a range of alliances with foreign firms for specific projects, and is rumoured to be in talks with Indian firms as well as France's Peugeot.

Kamarul admitted that Proton, which is dogged by a reputation for poor quality and unimaginative models, needed to gain technological know-how from a foreign partner.

"We don't believe we have the right number of resources and the right number of skills, so therefore we have to look at this development alliance too."

However, he said Proton was not prepared to give up its independence - an issue that is believed to have torpedoed the Volkswagen alliance.

Proton also said that Lotus Engineering (Malaysia) Sdn Bhd, a company within the Proton empire, is exploring a deal with Chinese firm Jinhua Youngman Automobile Group to design and sell knocked-down vehicles in China.

The feasibility study will run for the next three months, it said.