MUMBAI – Honda Siel Cars India Ltd. establishes a new Rs10 billion ($255 million) plant in Rajasthan, with an initial capacity of 60,000 units annually.

The auto maker plans to invest an additional Rs30 billion ($601 million) to increase capacity to 250,000-300,000 units annually as demand warrants.

Since 1994, Honda Siel has put more than 300,000 cars and utilities on Indian roads, sourced from the auto maker’s Noida plant on the outskirts of New Delhi.

Last year, capacity at the Noida’s facility was doubled and investment increased to Rs16 billion ($333 million).

Honda Siel posted a 19.8% decline in April-September sales to 23,494 units. The auto maker is hoping to reverse its fortunes with the introduction next year of a premium Jazz (Fit) subcompact hatchback with a 1.2L engine and at a later date, a minicar with a smaller powertrain.

“We are designing a small car, which will be launched a few years down the line,” Jnaneswar Sen, Honda Siel vice president, tells the media at a recent launch of the third-generation Honda City sedan.

Honda Motor Co. Ltd. President Takeo Fukui previously announced Honda planned to launch “a very small car in Europe as well as emerging countries such as China and India, in early 2010.”

Honda already sells minivehicles with 0.66L engines under the K series in Japan. The auto maker is hoping for a strong response to the new minicar in view of the high gasoline prices in India. But at the same time, it has had difficulty selling minicars outside Japan.

Minicars are popular in Japan in part due to large tax incentives.

Honda Siel has a network of 80 dealers in 51 cities and plans to expand its retail network to 160 dealers in 90 cities in the next three years.