Volkswagen India plans to manufacture engines in India to supply its domestic and international demands and is on the lookout for local suppliers for other components, having appointed a new Indian managing director.

Following the success of the Passat saloon and Touareg SUV, VW plans to manufacture and launch a range of small cars.

With the aim of increasing local sales and ensuring cost-competitiveness, it is keen to enlist suppliers for engine components for its manufacturing unit in Chakan.

"We are open to sourcing for all areas and parts for engines," said Thomas Dahlem, director, manufacturing, VW India.

The first major sourcing deal signed yesterday (29 May) was a US$15m agreement with Delhi-based Minda Industries for headlights and rear combination lamps.

"We have signed a letter of intent with Volkswagen to supply automotive lighting, which will be made at our manufacturing plant in Pune. We will be working closely with Volkswagen's head office at Wolfsburg in Germany to develop the style and prototype of these products to meet quality and cost parameters. It's an all new technology that we are developing for them which will be used for the first time in India" said managing director NK Minda.

Spelling out VW India's manufacturing strategy, president and MD Joerg Mueller said: "We plan to source largely from local vendors to keep our car prices low and competitive. We will launch Polo in two variants, a small car and a sedan, sometime next year. We are working on a supplier's chain."

VW India is serious about local reach in the country and has appointed KK Swamy, the former deputy MD of Toyota Kirloskar Motors, as MD and vice-president. He starts on 21 July, reporting to Muller.

The company plans to locate around 10 component suppliers within a special area of its 230-acre site, secured for EUR580m, aiming to reduce logistics costs.

In another attempt to reduce costs, VW India is lobbying the Indian government to lay a 6km (4 mile) railway line (including a river bridge) within the Chakan-Taelgaon industrial areas for moving raw materials and finished goods.

Kevin Jacobs