September 16, 2014 / 4:58 AM / 3 years ago

Mitsubishi leads $600 million investment in Indonesia plant, new car

The logo of Mitsubishi Motors is seen on the front part of the company's car at the company showroom in Tokyo November 6, 2013.Issei Kato

JAKARTA/TOKYO (Reuters) - Mitsubishi Motors Corp (7211.T) is leading a $600 million investment in Indonesia to build a factory and develop a new car, as the Japanese auto maker seeks to expand in a growing and increasingly competitive auto market.

The pace of auto sales growth in Indonesia has been easing this year as the economy has slowed, but Chief Executive Osamu Masuko said boosting volume in one of the world's most populous countries was crucial for its long-term growth.

"(Indonesia's) population still increases every year, so in the future the Indonesian market will become bigger and bigger," he told reporters in Jakarta.

"This is the most important project for our sustainable growth," he added later, speaking by telephone.

Japan's second-tier car makers, including Mitsubishi Motors - which sells a little over 1 million vehicles globally a year - are betting on growth in Southeast Asia to compensate for shrinking sales in their ageing domestic market.

The region now accounts for a quarter of Mitsubishi Motors' global vehicle sales and Indonesia, with a population of around 240 million people, is the automaker's biggest foreign market.

Mitsubishi's move comes as foreign investment in Indonesia appears to be picking up, fueled by hopes of reform after Joko Widodo was elected president.

Indonesia may also exempt Mitsubishi from some import duties for a period, for example on raw materials, Budi Darmadi, an official at the industry ministry, told Reuters.

The new Indonesian plant will have an annual capacity of 160,000 vehicles and Mitsubishi may expand that to 240,000 vehicles in the future, Masuko said, adding production would start in the first half of 2017.

With the help of the new plant, Mitsubishi Motors aims to boost its Indonesian market share to 13 percent from the current 8 percent and make Indonesia its second-biggest production base in Southeast Asia after Thailand, he said.

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At the new plant, to be built in an industrial park 37 km (23 miles) east of Jakarta, Mitsubishi will make a new multi-purpose vehicle (MPV) that can seat up to about eight passengers as well as two types of commercial vehicles, Masuko said.

Toyota Motor Corp (7203.T) used to dominate in the MPV segment with the Avanza, but competition is heating up as rivals introduce new models such as Honda Motor Co's (7267.T) Mobilio.

Mitsubishi plans to manufacture 80,000 MPVs at the plant a year and export 20,000 of them mainly to Thailand, Philippines and Vietnam, Masuko said.

Out of the $600 million investment, Mitsubishi Motors will pay around $250 million to develop the new MPV.

Mitsubishi Motors, trading house Mitsubishi Corp (8058.T) and a local partner will split the remaining of $350 million to build the plant, Masuko said.

Mitsubishi Motors, owned 10.1 percent by Mitsubishi Corp, currently manufactures commercial vehicles at a plant in Jakarta owned by Mitsubishi Corp and local partners.

The car maker has yet to decide what it will do with its capacity at this plant, a spokesman said. In the last financial year, Mitsubishi Motors made around 68,000 vehicles in Indonesia.

Additional reporting by Eveline Danubrata and Dennys Kapa in Jakarta; Editing by Stephen Coates, Edwina Gibbs and Clara Ferreira Marques

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