Following its failure to form an alliance with Proton, Volkswagen has said it may build a car assembly plant in Thailand as a way of expanding its market in south east Asia and Tata has similar ideas.

According to local press reports, Volkswagen has applied to Thailand’s board of investment to invest over $US900m (EUR600m) in an assembly plant in Samut Prakan, near Bankgok.

Volkswagen is applying to produce the cars as part of Thailand’s eco-car tax break scheme, designed to encourage production of small cars, in addition to the large number of pick-ups that are already assembled in the country. To qualify for the scheme the manufacturer must aim to produce at least 100,000 cars annually at the plant and fuel economy must not exceed five litres of petrol per 100km.

A report by German press agency dpa, said that around 65% of the cars assembled at the plant would be exported.

In addition, Tata Motors while busy running a tape measure over Jaguar and Land Rover, has also submitted an application to build a similar assembly plant in Thailand.

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Reuters noted that Tata already has a venture with Thai truck-maker Thonburi to assemble pick-up trucks and other vehicles, and has said it planned to use the country as a manufacturing base to expand its sales in southeast Asia.

“Tata Motors has submitted a proposal, the details of which are confidential at this stage,” a spokesman told the news agency.

India’s Economic Times newspaper said in an unsourced report Tata would invest INR8-9bn ($US200-230m) in the plant to assemble a new low-cost car and build a component hub.

The Thai government would consider the deal this week, the news agency added, noting that Tata declined to comment.

Honda, Suzuki and Nissan have already received permission to produce cars under the scheme. Toyota and Mitsubishi are also applying.

A report in the Bangkok Post suggested that seven assemblers are expected to be approved under the scheme, initiating capital investments of over 60bn baht ($2bn, EUR1.3bn) between 2008 and 2010.