Volkswagen AG and Proton Agree Long-Term Strategic Partnership

Press Release

Assembly operations to start in around a year

Wolfsburg, 26th October 2004 - Volkswagen AG and the Malaysian carmaker Proton Holdings Berhad have agreed to enter into a long-term strategic partnership. Representatives of the two companies signed a Memorandum of Understanding on Tuesday at the Volkswagen head officein Wolfsburg. The partnership involves the assembly of Volkswagen vehicles in Malaysia, with operations scheduled to begin around a year from now.

Chairman of the Board of Management of Volkswagen AG, Dr. Bernd Pischetsrieder, stated: "The Volkswagen Group intends to gain a significant market share in the countries of the ASEAN region over the coming years. The two companies will bring their respective strengths and benefits to this partnership in an optimum way."

Group CEO of Proton Holdings Berhad, Tengku Tan Sri Dr Mahaleel said at the signing ceremony: "The partnership will create immense value not only for Proton and the local vendors but also for Malaysia as the cars assembled will also be exported."

Currently, there are no plans for Volkswagen to take a shareholding in Proton. The partnership stipulates that both parties will retain their full corporate independence. The collaboration will enable Volkswagen to establish a base for servicing the markets of the ASEAN region, without having to make extensive capital investments in the region. The primary aim is to build up an automobile industry of global market standard in Malaysia, exporting to other countries in the region as well as supplying the local market. Opportunities for joint vehicle development will also be closely examined.

As a first step, Volkswagen and Proton have agreed to begin preparations for the assembly of kits of two models. The collaboration will initially involve only the Volkswagen brand, with a review option to extend it to other Volkswagen brands in a later phase.

The goal is to launch the first models assembled in Malaysia into the local market by the end of next year. The initial sales target for 2006 is to top 15,000 units, with that figure being increased substantially over the subsequent years. A key factor in the strong growth prospects is that Proton already operates an efficient dealership network that can be utilised at least in part for sales of Volkswagen vehicles.

At the same time the aim is also to build up the components industry in Malaysia, enabling some of the parts required to be procured from local manufacturing sources.

The Volkswagen Group has to date been under-represented in the ASEAN countries. At the same time, the market for right-hand drive vehicles is now outperforming the growth in the left-hand drive sector, and is of major importance in terms of gaining a larger share of the global market. Independent forecasters estimate that the right-hand drive market will grow over the coming years from a recorded level of 1.4 million units in 2003 to a volume of 2.4 million units by 2015, representing a 67 percent increase.

In 2003 Proton generated sales revenue equivalent to 2.4 billion Euro, and at present operates three manufacturing facilities in Malaysia. It has an almost 50 percent share of its home market.