National carmaker Proton and German auto giant Volkswagen AG will meet soon in Bangkok to discuss a possible tie-up, state media quoted Prime Minister Abdullah Ahmad Badawi as saying.

The two companies met last week in New York to discuss a much-needed strategic alliance for Proton, which is struggling with declining sales, and Abdullah said the talks hade gone well so far.

"Both sides are in a positive mood," Abdullah was quoted as saying by the Bernama news agency.

"The fact that they want to have another round of discussion means that both sides are happy with the first result."

Malaysia's government is under intense pressure to announce details of a partnership for Proton in a bid to provide it with expertise to stem a sharp decline in market share.

The loss-making company last year lost its status as Malaysia's biggest-selling automaker to homegrown rival Perodua.

The talks in New York came after Abdullah said late last month that dealings with Volkswagen had failed.

The next day, a senior government official said negotiations were back on after Volkswagen requested a final round of talks.

A previous attempt at forging a deal with Volkswagen broke down in January 2006 after Proton rejected what it said were "inappropriate" plans by the German carmaker to exert control over the Malaysian firm.

Malaysia owns 59 percent of Proton and analysts have partly attributed difficulties in forging partnerships over the government's reluctance to cede control of a key national company to foreign hands.

Proton last month reported larger than expected net losses of RM591.36 million for the year to March 2007.

The carmaker blamed weak sales and higher production costs for a reversal from the previous year's profit of RM46.69 million.