Volkswagen has not abandoned its fuel-efficient eco-car in Thailand, even though the planned venture has been delayed for nearly two years after approval by the Board of Investment (BOI).

The German car company needed to improve its confidence in Thailand before deciding to embark on such a huge investment, said a senior source.

Volkswagen's investment was said to be 27 billion baht for the eco-car, much more than similar projects proposed by Japanese and Indian carmakers. This was because Volkswagen has no presence in Thailand and needed to start its venture from scratch, including parts sourcing.

The government's strong support for E85 gasohol-powered cars, which enjoy a steep excise tax reduction, also scared it off the venture, said the source.

"Volkswagen has not scrapped the project and it is still in talks with us," said Ajarin Pattanapanchai, a BOI deputy secretary-general.

The source said Volkswagen's confidence in Thailand ebbed in light of political turmoil and the automotive industry slump from the global recession.

"Prime Minister Abhisit Vejjajiva should visit Germany. It would help restore the confidence of German investors," said the source.

Atchaka Sibunruang Brimble, the BOI secretary-general, said Nissan's announcement that it would produce eco-cars in Thailand early next year should restore confidence among foreign investors in the government's policy and would also attract new investors.

Volkswagen turned its attention to Thailand to produce a small car after failing to team up with Malaysia's Proton for a similar project. Europe's biggest car company is looking at building a manufacturing base in Asean in addition to its production base in China.

It applied to the BOI for promotional privileges right before the deadline in December 2007. However, the proposal has not yet been approved as the BOI has asked for more details. Other proposals submitted by Nissan, Toyota, Honda, Mitsubishi, Suzuki and Tata of India have been approved.