Both Volkswagen and KIA are planning to expand their operations in Slovakia, according to economy minister, Lubomire Jahnatek.

Jahnatek told a local television station that VW plans to invest around EUR300m at its site in Bratislava to build small cars. He said the automaker is currently talking with the government about state incentives – probably tax breaks. Jahnatek said the investment would create around 2,000 new jobs.

Newspaper Hospodarske Noviny said the Up! was one of the planned cars, citing unnamed officials at the Slovak economy ministry.

It noted that VW had considered producing the car at Skoda Auto in the Czech Republic, but the Czech koruna’s appreciation and higher set-up costs made that location too costly. The Up! should be in showrooms within three years, the paper added.

The news followed an announcement by Kia a few weeks ago that it would build a third model at its plant in Zilina from 2010. The company is also considering building an engine plant adjacent to the plant, according to local press reports.

But the German press agency dpa said planned expansion would now be delayed by the slowdown in vehicle demand.