VW to invest $529 million in Brazil Audi, Golf production

German automaker Volkswagen AG will soon announce investments of 1.2 billion reais ($529 million) in Brazil to begin local assembly of its newest Golf model and restart local production by its Audi premium division, a spokesman for the state of Parana told Reuters.

Audi Vice President Bernd Martens confirmed the unit's investment after meeting with President Dilma Rousseff in Brasilia on Tuesday, a part of the carmaker's overseas expansion to catch up with luxury-market leader BMW .

Audi's move follows steps by the Brazilian government to raise taxes on imported vehicles while offering tax breaks for carmakers that increase domestic investments.

Instead of building an all-new plant in the world's No. 4 auto market as German rival BMW did, Audi will invest 504 million reais to expand facilities at VW's factory in S��o Jose dos Pinhais, outside the capital of Parana, according to the state government's spokesman.

Ingolstadt-based Audi expects to start production in Brazil in 2015 and produce 26,000 of the compact A3 annually within three years, he said. The plant will also produce the Q3 compact SUV. Next week, VW will also announce an investment of 700 million reais to prepare for the production of its new Golf model at the factory, according to the spokesman.

Volkswagen's press office in Brazil declined to comment on potential investment in Golf production.

BMW said in October that it would spend 200 million euros ($267 million) on a factory in Brazil's southern state of Santa Catarina and start production there in late 2014, with the goal of making about 30,000 vehicles per year in the country.

Rising wages, especially for scarce, highly skilled professionals, have made Brazil a bright spot in the global market for luxury goods. But both Honda Motor Co Ltd <7267.T> and General Motors Co have said luxury car sales in Brazil are still too slim to consider making it a base for producing their upmarket offerings.

Brazil is not uncharted territory for Audi. It first entered the market in 1999, when it started building the A3 at the Parana plant jointly developed with VW. Audi stopped its assembly line at the plant in 2006.

To meet its goal of replacing BMW as the world's best-selling premium carmaker by the end of the decade, Audi is now expanding globally. The brand broke ground for a new plant in Mexico in May and will open one a factory in Foshan, China, later this year.

($1 = 0.75 euros)

($1 = 2.27 reais)

(Writing and additional reporting by Andreas Cremer in Berlin; Editing by Lisa Von Ahn and Andrew Hay)