Volkswagen to produce new compact sedan in Mexico

PUEBLA, Mexico, July 20 (Reuters) - Volkswagen VOWG.DE will begin assembling a new compact car at its plant in Mexico early next year following a $1 billion investment, a senior executive said on Monday.

Otto Lindner, head of Volkswagen’s Mexican operations, told reporters that Mexican engineers were developing the model, known internally as the New Compact Sedan.

Volkswagen will spend $400 million of its $1 billion capital expenditure in Mexico on creating a new assembly line at its plant in the central Mexican state of Puebla, Lindner said.

“The rest of the investment will go toward the modernization of existing production lines and the development of the new vehicle,” he said at an event with President Felipe Calderon.

Last week, the German automaker said it would produce a new car at the plant in Puebla, its only North American production facility, but gave no details about the model.

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.

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.

Volkswagen is Mexico’s No. 2 automaker, sending most of its cars to the United States, Canada and Europe. But falling demand has forced the company to slow production in Mexico.

Reporting by Julio Martinez in Puebla; Editing by Richard Chang