Honda is developing a one-litre small car that will be built in southeast Asia and mainly exported to Europe, sources have told Automotive News Europe.

Details began to leak out in a variety of news media last week and some aspects of the story have previously been reported by just-auto.

Adding new details from its sources, ANE said the UK would be a key market for the so-called "Eco-car."

Honda could build 100,000 small cars a year and is said to have set aside 6.6 billion Thai bhat (€125 million) for the project. Production would start within two years.

The car would be developed at Honda's new research and development centre in Bangkok but may be produced either in Thailand or Malaysia, say sources.

Honda declined to comment beyond saying "We are always looking into new markets."

But Thai parts and components suppliers told ANE they are already quoting prices to Honda to supply parts for the new car.

Thailand currently produces pickup trucks for domestic and foreign markets.

The Thai government wants to develop a second auto base. It is considering offering tax and investment incentives to automakers willing build small, fuel-efficient cars in Thailand.

"In addition to Honda, three or four other global automakers are looking into our 'Best Little Car' project," said Vachara Panchet, Thailand's vice-minister for industry.

"Starting with Honda, we expect the first Eco-car to be rolled out in the next 18 months, followed by other brands," says Vachara. "We aim to turn the project into our second product pillar in addition to pickup trucks."

Vachara anticipates total production of 400,000 small cars per annum in the medium term, half of which would be exported to Europe and southeast Asian markets.

The Thai government also is talking to General Motors, Suzuki, Kia, Mitsubishi, Nissan and DaimlerChrysler.

To qualify for help from the Thai government, automakers would build cars that meet European crash standards and Euro 4 emissions levels.

Cars would also be less than 3600mm long and 1600mm wide and achieve fuel economy of 17.8km per litre (5.5 litres per 100km).

To succeed in the Thai auto market automakers need pickups, but Honda has none. So Honda is looking for a high-potential niche market, such as a fuel-efficient small car.

But Honda could also choose to build in Malaysia, where it has capacity and labour costs are lower than Thailand. Malaysia wants to attract more auto production and will announce a new automotive policy by year-end.