VW Inks Malaysia Car Assembly Deal

German carmaker will make its new Passat and Jetta cars in Malaysia by late 2011 in a $318 million venture with local auto group DRB-Hicom Berhad.

KUALA LUMPUR, Malaysia (AP) -- German carmaker Volkswagen AG will make its new Passat and Jetta cars in Malaysia by late 2011 in a 1 billion ringgit ($318 million) venture inked Tuesday with local auto group DRB-Hicom Berhad as it seeks to expand in Southeast Asia.

DRB Managing Director Mohamad Khamil Jamil said DRB will foot 70 percent of the investment, with the rest from VW mainly to build production infrastructure and for training and quality control at DRB's existing plant in Pekan in central Pahang state.

The VW cars, due to roll out by the fourth quarter of 2011, will be sold in Malaysia and later possibly exported to other Southeast Asian nations, said VW board member Christian Klingler.

"Developing the market potential of the region is of major significance for the VW Group's long-term growth strategy," Klingler said after VW and DRB inked a collaboration and license agreement.

The VW group -- which includes brands such as Audi, Skoda and Seat -- aims to boost sales and production in Southeast Asia to between 40,000 and 50,000 over the next few years from 14,000 last year, he said while declining to give more details.

Mohamad Khamil said DRB will initially produce some 3,000 VW cars annually before expanding output from the end of 2012.

DRB's Pekan plant -- which also assemble vehicles for Mercedes Benz, Suzuki and Mitsubishi -- has a production capacity of nearly 100,000 vehicles a year but only a third of that is utilized, he said. DRB will set up a vendor network to increase the proportion of Malaysian-made parts in VW cars to 40 percent in the long run, he said.

The deal came after VW scrapped alliance talks with national carmaker Proton earlier this year -- the second time that talks had collapsed between the two. No reasons were given but the government's insistence on maintaining control over Proton has made it difficult for the carmaker to seal any meaningful partnership.

Wolfsburg-based Volkswagen made its first foray into Southeast Asia last year after setting up assembly operations in Indonesia to produce the Touran minivans.

Klingler said Southeast Asia's market of more than 500 million people has huge growth potential for the VW group. He said the group has picked Malaysia over Thailand as it is the largest passenger car market in the region whereas Thailand is a hub for pickup vehicles.

However, he didn't rule out the possibility of setting up assembly operations in other Southeast Asian countries.

Volkswagen shares were up 0.1 percent in Frankfurt at euros 126.40 ($166.19).

Associated Press Writer Geir Moulson in Berlin contributed to this report.
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