Toyota will build a 'state-of-the-art' common-rail diesel engine at its new Valenciennes plant in France from early 2003, Automotive News Europe reported.

The newspaper quoted Toyota chairman Hiroshi Okuda saying that the 1.4-litre, direct-injection unit for the Yaris supermini "will be a state-of-the-art diesel".

"We will start off with the assembly of 30,000 to 40,000 units a year at Valenciennes," said Okuda at a ceremony marking the start of French Yaris production. He added that the plant would bring Toyota closer to its goal of assembling cars where they are sold.

Toyota will first build the new diesel engine in Japan and then introduce it to Europe in Yaris models exported from the end of 2001.

Increased local production in Europe would, however, not be ruled out, said Okuda.

Toyota would watch "economic developments and overall new car sales in Europe carefully before deciding on that", he told Automotive News, adding that "producing 50 percent of the total sales volume in Europe is a minimum requirement."

Toyota sold 655,600 cars in Europe last year, including 232,085 Yaris models, but the company does not expect significant sales growth this year.

"Overall sales in Europe are in a slight decline, so that will also affect our sales performance", Akira Imai, president and CEO of Toyota Motor Europe, told Automotive News.

Without modern diesels, Toyota and other Japanese carmakers are losing market share in Europe, the newspaper said.

It added that diesel cars made up 32 percent of sales in Europe last year, an increase from 28 percent in 1999. Demand is expected to reach 34 percent in 2001 and is set to rise.

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Toyota (inc Daihatsu) Strategic Review