Mitsubishi and Russia to sign car assembly deal: source

By Chang-Ran Kim, Asia auto correspondent

TOKYO (Reuters) - Japan's Mitsubishi Motors Corp will sign a final agreement with the Russian government early next week signifying its intention to assemble cars locally by mid-2010, a source familiar with the matter said on Friday.

The Japanese automaker signed a letter of intent a year ago to build a car assembly plant in the oil-rich nation, and has until December 25 to decide. The agreement, which would give Mitsubishi Motors a lowered tariff rate on auto components for eight years, may be signed on Monday, the source said.

Mitsubishi has been expanding rapidly in the fast-growing Russian market with its Lancer sedan but had struggled to decide on a greenfield site since it has underused plants in Australia, Europe and to a lesser extent the United States.

Mitsubishi and France's PSA Peugeot Citroen are considering a joint factory to save money, but that decision, as well as a site for a future plant, is yet to be made, the source said.

A Mitsubishi Motors spokeswoman said negotiations with the government were ongoing and the company would make an announcement when and if an agreement was signed.

Peugeot has a separate similar agreement with Moscow. It said last week it was weighing two sites for a plant -- at Kaluga about 190 km (120 miles) southwest of Moscow, or Nizhny Novgorod some 400 km (250 miles) east of the capital.

Peugeot and Mitsubishi have an operational tie-up under which the Japanese automaker builds 4X4 vehicles such as the C-Crosser and Peugeot 4007.

Mitsubishi Motors, which returned to the black in the past business year for the first time in four years, is banking on growth in Russia, now one of its strongest markets, to drive future expansion.

Sales of foreign car brands in Russia surged 63 percent in the first 11 months of this year. Mitsubishi, ranked sixth in Russia, expects to sell 105,000 cars there this year, up 50 percent from around 70,000 sold in 2006.

General Motors Corp, Ford Motor Co and Hyundai Motor Co all build cars in Russia, and Japan's Toyota Motor Corp, Nissan Motor Co and Suzuki Motor Corp are scheduled to follow.

Shares of Mitsubishi Motors rose 1.1 percent in morning trade to 189 yen, in line with the Tokyo bourse's transport sector subindex.

(Editing by Michael Watson)