Volkswagen-DRB Venture Adds Malaysian Car Assembly in Challenge to Toyota

Volkswagen AG, Europe’s largest carmaker, will start assembling Passat sedans in Malaysia by the end of 2011 and plans to build more models in the southeast Asian country as the company challenge to Toyota Motor Corp.

DRB-Hicom Bhd., a Malaysian automaker and distributor, will build the Passat for Volkswagen at its factory in Pekan in Pahang state, VW said today in a statement. The companies will invest about 1 billion ringgit ($320 million) to produce the vehicles starting in the fourth quarter of 2011, DRB-Hicom Managing Director Mohd Khamil Jamil said in a separate statement.

“This is a building block in Volkswagen’s strategy to become more global,” said Marc-Rene Tonn, an analyst with M.M. Warburg. “It’s clear that emerging economies will be a key source of growth, making non-Chinese Asia an essential area for expansion.”

Volkswagen plans to invest 51.6 billion euros ($68 billion) in its automotive business through 2015 in an effort to surpass Toyota as the world’s biggest carmaker. The Wolfsburg, Germany- based manufacturer, which also owns the Audi, Skoda, Seat and Lamborghini brands, is building a factory in the U.S. and aims to add 50,000 jobs globally over the next five years.

DRB-Hicom’s collaboration with Volkswagen will expand the Malaysian manufacturer’s assembly and component-making operations, the company said. DRB-Hicom has partnerships with Daimler AG’s Mercedes-Benz division and Honda Motor Co. UMW Holdings Bhd. builds cars in Malaysia for Toyota City, Japan- based Toyota.

Malaysian Market’s Growth

Auto deliveries in Malaysia, the third-largest economy in the Association of Southeast Asian Nations, rose 14 percent in the first 10 months of 2010, according to the Malaysian Automotive Association.

“Developing the market potential of the Asean region is of major significance for the Volkswagen group’s long-term growth strategy,” Christian Klingler, the German manufacturer’s sales chief, said in the statement.

The Pekan facility, which DRB-Hicom said will later make VW’s Polo and Jetta models, will have an initial capacity of “several thousand” vehicles a year by the time it reaches full-scale production at the end of 2012, Volkswagen said. The plant will initially assemble the VW cars for the local market from parts produced at other factories.

VW’s investment in the project will total 120 million euros, said Chris Adomat, a spokesman for the German company.

Shift From Proton

The agreement with DRB-Hicom marks a shift from VW’s unsuccessful efforts to enter Malaysia with state-controlled Proton Holdings Bhd. Volkswagen called off the latest round of talks with Proton in June. The two companies also failed to reach an agreement in November 2007 after 12 months of negotiations.

Volkswagen’s preferred shares rose as much as 1.5 percent to 128.10 euros and were up 1.2 percent as of 12:13 p.m. in Frankfurt trading. DRB-Hicom gained 0.5 percent to 1.94 ringgit, the highest price since Oct. 31, 2007, as of the 4 p.m. close of Kuala Lumpur trading.

The VW venture will allow DRB-Hicom, which also imports vehicles and runs a dealer network, to participate in Volkswagen’s future plans to export vehicles to Malaysia and other markets in the region, said the company, which is based in Shah Alam, outside Kuala Lumpur. Under the license agreement, DRB-Hicom will sell products to Volkswagen for distribution.

In addition to Mercedes-Benz and Honda models, DRB-Hicom builds vehicles for Isuzu Motors Ltd. and Suzuki Motor Corp. as well as Honda, Suzuki and Yamaha Motor Co. motorcycles, according to its website.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net; Manirajan Ramasamy in Kuala Lumpur at rmanirajan@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

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