Malaysia's state investment arm, Khazanah Nasional, which controls Proton has discontinued negotiations with VW.
VW was the latest in a long line of potential venture partners that included Fiat, Peugeot and General Motors.
It had wanted to buy a 51 per cent controlling stake in Proton, but the Malaysian Government baulked at losing control of the carmaker.
Carsguide understands this has been a sticking point with other alliance contenders. Some auto analysts say Proton may find it hard to secure a partner in the future.
But Proton Australia chief John Startari, who is in Malaysia, says the change of heart by the Government demonstrates its faith in the carmaker “to continue the work they've done in turning the company around.”
“They've given new management the opportunity to continue the work they've done in turning the company around after the losses last year,” he says.
“They've made significant gains so far this year.”
The arrival of the new Persona sedan and models such as the BLM (for baseline model) and a people mover augur well for the future.
“Proton at no time has said it won't need a partner, or it doesn't need a partner,” Startari says.
“It's just saying the timing at this point is not right.”
Proton Australia has sold 2035 cars this year, up 25 per cent on last year, admittedly off a low base.
The arrival of the Persona and other products should lift its market share.
VW started talks with Proton in 2004 with the aim of forming a strategic alliance and giving Proton better access to new technologies, platforms and better quality standards.
The Malaysian Government says it has also ended talks with General Motors.
Proton's domestic sales and exports are improving, which prompted the cancellation of negotiations.
But the Government has not ruled out a technology alliance with another global automotive player at some stage.
Proton Holdings managing director Syed Zainal says the latest development did not detract Proton from continuing its efforts to seek opportunities to enhance its product portfolio and access to markets, technology and operational efficiencies.