Talks with two major foreign auto firms to partner Malaysia's ailing national carmaker Proton are going well and a deal is expected to be clinched by year-end, a top official said today.

Germany's Volkswagen AG and US giant General Motors are the two companies vying to become the strategic partner for Proton.

"Talks are ongoing. We are making steady progress ... The overall deadline is year-end," Azman Mokhtar, managing director of state investment arm Khazanah Nasional, told reporters.

Khazanah is the controlling shareholder in Proton, with a 42.74 percent stake. State pension fund EPF and national oil firm Petronas own 12.07 percent and 8.84 percent respectively.

Azman said the year-end deadline is in line with Khazanah's aim to resolve the revamp of Proton and two other troubled government-linked companies.

The partnership talks involve "both" General Motors and Volkswagen, he said.

Second Minister of Finance, Nor Mohamed Yakcop, was quoted saying Monday that the companies are in the running.

"There is VW and there is GM. On the table there are these two. We have not shut the door on any of them," Nor Mohamed said.

Officials said last week that Proton and Volkswagen were cautiously edging towards a partnership after a second round of talks in Thailand, following initial negotiations in New York earlier this month.

"June was particularly important to regain momentum on the talks. The momentum is good," Azman said Tuesday.

The government is under intense pressure to announce details of a partnership for Proton in a bid to provide it with the expertise to stem a sharp decline in market share and cut financial losses.

Proton last year lost its status as Malaysia's biggest-selling automaker to homegrown rival Perodua and recently reported larger than expected net losses of RM591.36 million for the year to March 2007.