July 30, 2007 / 2:20 AM / 13 years ago

Volkswagen to set up plant in Indonesia - paper

JAKARTA, July 30 (Reuters) - Volkswagen (VOWG.DE) plans to build an assembly plant in Indonesia next year to build a small car, a newspaper reported on Monday, citing an Indonesian government official.

Budhi Dharmadi, a director general at the industry ministry, was quoted by the Investor Daily newspaper as saying the plant would manufacture vehicles with an engine size smaller than 1.5 litres and a van.

Volkswagen officials could not immediately be contacted.

Last month, French carmaker Renault (RENA.PA) was reported to be planning to set up an Indonesian base to produce a van model with an annual capacity of 150,000 to 200,000 vehicles.

Indonesian vehicle sales dropped by around 40 percent last year, hit by weak consumer spending after the government hiked domestic fuel prices in late 2005. Volkswagen only sold 150 vehicles last year out of Indonesia’s domestic sales of 318,883 units in 2006.

However, sales volumes are expected to recover to more than 400,000 units this year, helped by lower interest rates after the central bank cut its benchmark rate 13 times in the past 14 months as inflationary pressure eased.

The automotive market in Southeast Asia’s biggest economy has been dominated by Japanese carmakers, which mostly have production bases in the country.

Toyota (7203.T) dominated the country’s van market with its popular Kijang and Avanza. Nissan has challenged Toyota by launching its Grand Livina van earlier this year.

((Reporting by Harry Suhartono, editing by Ed Davies; harry.suhartono@reuters.com; Reuters Messaging: harry.suhartono.reuters.com@reuters.net; +62 21 384 6364 ext 905)) Keywords: VOLKSWAGEN INDONESIA/

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