The agreement will see Passat models assembled locally from the end of 2011 and VW says it's planning to build further Volkswagen models from the end of 2012 using a full-scale CKD (completely knocked-down) assembly with an initial annual capacity of several thousand vehicles.

'Developing the market potential of the ASEAN region is of major significance for the Volkswagen Group’s long-term growth strategy,' said Christian Klingler, VW board member.

He added that the Malaysian automobile market in particular, where more than 570,000 vehicles were sold in 2010, played an important role in the Group’s strategic planning. 'We will be using existing structures and capacities at the DRB Hicom plant in Pekan to systematically extend our presence in the Malaysian market of the future,' Mr Klingler continued.

VW signed a memorandum of understating to investigate local vehicle production with its Malaysian partner DRB Hicom back in August 2010.

DRB Hicom has the largest automotive production network in Malaysia and builds passenger cars and commercial vehicles at its plants in Pekan and Melaka. The company is also a prominent automobile dealer and importer in Malaysia.