National carmaker Proton and France's PSA Peugeot-Citroen are studying the prospect of forming a partnership which may lead to manufacturing and distribution agreements.

The two auto manufacturers signed a letter of intent to evaluate and study a possible co-operation in Paris last Friday, Proton said in a statement issued to the stock exchange.

The evaluation, which will end on Jan 1 next year, will focus on product development, manufacturing, distribution, contract assembly, vendor development and quality improvement, Proton said.

While Proton aims to "leverage the technological expertise of a major global automobile manufacturer", it said the French company expects to increase sales of its Peugeot and Citroen vehicles in Malaysia.

Such a partnership could also serve as a foundation for developing Peugeot-Citroen's business in the Asean region, the statement said.

This is Proton's second attempt to form a strategic alliance with a European car maker since talks with Germany's Volkswagen AG failed earlier this year.

Analysts said Proton needs to find a strong foreign partner to help revive its financial state. Last month it reported a RM58.6 million loss in the first quarter to June.

Proton's market share has fallen steadily in recent years.