Honda, Japan's third-largest carmaker, is to build a $100m components plant in Georgia and expand its engine-making facility in Alabama, highlighting the rapid growth of the car industry in the US south-east.

The investment also underlines the aggressive expansion of Japanese carmakers in the US at the expense of local manufacturers, such as General Motors and Ford.

Foreign carmakers have poured billions of dollars of capital into the US south-east over recent years, shifting the centre of gravity of an industry that has traditionally been located in northern states, such as Michigan and Indiana.

Carmakers have been attracted to the south-east by relatively low labour costs, a largely non-unionised workforce and hefty financial incentives from states desperate to attract fresh investment and jobs.

Growth in carmaking has helped breathe fresh life into the economy of a region hurt badly by the loss of traditional industries, such as textiles and agriculture, to developing countries.

Alabama has won the largest share of investment by foreign carmakers but Tuesday’s announcement by Honda showed that neighbouring states, such as Georgia, were also benefiting.

Koichi Kondo, Honda's chief operating officer in North America, said in an Atlanta news conference that the company would also invest an additional $70m (€54m, £37.7m) in its engine plant in Alabama and a further $100m in its transmission plant in Ohio.

The additional $270m will bring Honda's total investment in the US to $8.5bn.

The company said about 97 per cent of the components of its cars sold in the US were now manufactured in North America.

Georgia's state government offered incentives worth about $7m to attract Honda to Tallapoosa.

Hyundai Motor, the South Korean carmaker that is building a $1bn plant in Alabama, is among the other foreign carmakers investing heavily in the US south-east.

Honda said it would build 300,000 automatic transmissions every year at the planned facility in Tallapoosa, 40 miles west of Atlanta, creating about 400 jobs. The new site, which will start production in 2006, will feed the company's vehicle assembly plant in Lincoln, Alabama.

Honda's US announcement came a day after the carmaker said it would quadruple car production in Wuhan, China, by 2006, as part of its joint venture with Dongfeng Motor, the Chinese car group.

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