Agence France-Presse cites Honda saying on Thursday that it would expand its Malaysian presence by investing 374 million ringgit ($US98 million) in its manufacturing operations by 2005.

The company has already invested 180 million ringgit in an 80-acre factory in southern Melaka state, which will be officially opened by Prime Minister Mahathir Mohamad on January 17.

Honda Malaysia's managing director and chief executive Seiji Kuraishi told AFP the plant has a production capacity of 20,000 units a year and will begin mass production by mid-December.

He said the expansion in Malaysia was part of a move to prepare for market opening in 2005 under the Association of Southeast Asian Nations'(ASEAN) Free Trade Area (AFTA).

Despite a large passenger-car market in Malaysia of more than 400,000, Honda's share this year was still low at around only 6,500 units, but sales are projected to surge to more than 10,000 by next year with the introduction of new models, he said.

"We have invested 180 million ringgit so far, but we are committed to invest 374 million by 2005 for plant expansion and investment in new models and machinery," he told reporters after a tour of the plant.

The factory would begin production with the CRV four-wheel-drive model, while the Accord, City, and Civic models which are currently being assembled by its partner, Oriental Holdings in southern Johor state, would be gradually phased in next year.

"Under current plans, the contract assembly with Oriental will stop by the end of next year," Kuraishi said.

He said the Malaysian plant would produce cars for the domestic market, with future plans to cater for the export market once capacity is expanded to 40,000 units.

The Malaysian manufacturing factory is Honda's third in Southeast Asia after Thailand and the Philippines. It plans to open another manufacturing base in Indonesia by March next year.

Honda Malaysia general marketing manager Syed Hisham Syed Wazir said Honda did not do well in Malaysia because of special protection given to national cars Proton and Perodua, which take about 90% of the local car market.

Kuraishi said Honda's main competition in the small non-national market came from Toyota and from Korean cars, which were cheaper. He said Honda would strive to lower its costs while maintaining quality and service.

Prime Minister Mahathir Mohamad warned earlier this month that Malaysians should not expect cars to be cheaper when AFTA comes into force, saying local taxes would be imposed on all cars to replace the loss of revenue from import tariffs.

Honda's Malaysian factory, which can produce 40 cars a day, also houses a 20 million ringgit plant producing drive-shaft components, which makes it Honda's fourth base for this facility after Japan, the United States, and Belgium.

Kuraishi earlier flagged off the first commercial export of drive-shaft components to Thailand and said they would also be exported to other Honda plants in the ASEAN region, India and Pakistan.

Honda Motor of Japan owns 51% of Honda Malaysia, while local firm DRB-HICOM Bhd. and Oriental Holdings hold 34% and 15% respectively.

Oriental was previously the local assembler and distributor of Honda cars in Malaysia, but Honda Motor took back its franchise rights in July last year, the AFP report noted.