UPDATE 2-Volkswagen eyes new model in Mexico after expansion

* Production of new model seen in early 2010

* New model part of $1 billion investment in Mexico

* Volkswagen's Mexico production hit by global slump (Adds background on Mexico auto industry and plant, byline)

By Tomas Sarmiento

MEXICO CITY, July 14 (Reuters) - Volkswagen will start producing a new model at its plant in Mexico next year as it invests $1 billion to expand the site, a company spokeswoman in Mexico told Reuters on Tuesday.

The investment at its key Mexico plant, which produces Jettas, Boras and New Beetles, comes as carmakers around the world face slumping demand due to the economic downturn.

"The production of the new model will start in March or April of 2010," spokeswoman Consuelo Minutti said.

Before the global financial crisis hit its worst last year, the German company said it would invest $1 billion in Mexico between 2008 and 2010, without specifying how it would spend the money.

Volkswagen's investment is a vote of confidence about the future of Mexico's auto industry, which accounts for a fifth of the country's total manufactured exports.

A slide in U.S. demand has thrown Mexico into its steepest recession since at least the 1995 slump that became known as the Tequila Crisis.

Minutti declined to say which car Volkswagen will add to its line-up at the plant in the central state of Puebla, the company's only North American facility and the sole producer of the popular New Beetle model.

Company officials in Germany could not immediately be reached for comment.

Volkswagen is Mexico's No. 2 automaker, sending most of its cars to the United States, Canada and Europe.

But falling demand forced the company to slow VW's Mexican production in June by 22.7 percent, year over year, to 30,947 cars, according to the country's automaker association.

(Reporting by Cyntia Barrera; Editing by Richard Chang)