The announcements come at a crucial time for an industry hit by falling exports, sluggish domestic sales and competition for foreign investment from neighbouring rivals such as Vietnam, and will provide a boost for local parts suppliers like Thai Stanley Electric and Somboon Advance.

Analysts say Thailand might become a major regional exporter of small passenger cars, which are in high demand due to soaring oil prices and concerns about the environment, they say.

"It's a pretty significant development for the industry," said John Bonnell, a Bangkok-based analyst for Automotive Resources Asia.

Thailand built almost 867,000 light trucks last year, exporting half to Asia and Europe. By comparison, only a third of the 299,000 passenger cars made last year were shipped abroad.

Thai governments have struggled for years to convince global carmakers to invest in export-oriented plants for small sedans, including the so-called "eco" car project which stalled in 2004 amid fears it would bleed sales from other vehicles.

Bangkok revived the "eco" car this year, offering tax breaks, duty exemptions and other incentives if manufacturers invested a minimum 5 billion baht (US$146 million) and produce 100,000 by the fifth year of operations.

Automakers have until Nov. 30 to submit plans to the Board of Investment (BOI), which says the car must consume no more than 5 litres (1.1 gallons) of fuel per 100 km (60 miles) and meet strict international pollution standards.

NEW PROJECTS

Among the first to be approved was Honda Motor Co, which said this month it planned to build a new 6.7 billion baht "eco" car plant in the central province of Ayudhya.

Toyota Motor Corp, the world's biggest automaker, plans to use existing plant capacity for its "eco" car, which could be an adapted Vios or Yaris model rather than a new car.

Although technically not an "eco" car, about 80 percent of the 100,000 subcompacts to be built at a new US$500 million plant announced by Ford Motor Co and Mazda Motor Corp last week will be exported throughout Southeast Asia.

The factory, which will boost the annual capacity of their Thai joint venture to 275,000 vehicles, will be built alongside their existing truck plant in the eastern province of Rayong.

Indeed, Bonnell argues the efficiencies of using the infrastructure and supporting industries set up for the truck plant might be more significant than any government incentives for eco cars.

Whatever the reason, it's good news for an auto parts sector that raked in US$2.8 billion of exports last year, but sees a tough year ahead.

"Eco cars are the future," said Apichart Leeissaranukul, an executive at car lights maker Thai Stanley Electric which supplies Honda, Toyota and Ford.

"Car makers expect sales growth to fall this year. We are working just to keep our sales close to last year," he said.

BAHT TROUBLES

Auto firms have had stellar sales growth in Thailand since the late 1990s, especially light trucks widely used by rural Thais, a reflection of the country's large farm sector.

But domestic sales suffered as consumer confidence plunged during a political crisis in 2006 which ended with a bloodless military coup against Prime Minister Thaksin Shinawatra.

Auto exports, up 23 percent in the first eight months of 2007, are expected to take a hit next year if the baht which has risen 5 percent this year after surging 14 percent in 2006, continues to rise as some analysts predict.

"I'm not certain we will have good auto exports next year with the baht is still strong," said Apichart, whose company generates half its revenues from exports.

"The good exports you see this year reflect the baht in early 2006, which was much weaker than now," he said. "The effect of strong baht this year should be reflected in orders for 2008."

Apichart and other parts makers also worry about Thailand's ability to compete against lower-cost rivals such as Vietnam.

"Our industry is a magnet for auto makers and it's competitive in the region, at least for now," he said. "But that doesn't mean we won't lose the position one day."

Some firms are investing heavily to stay competitive.

AAPICO Hitech a truck chassis producer for Isuzu which suffered a 92 percent fall in second quarter earnings, plans to spend 2 billion baht over the next two years to prepare for the "eco" car and other new projects.

Chaiyaporn Nompitakcharoen, head of research at Bualuang Securities, said he still had a "neutral" rating on the auto parts sector, but the outlook was bright.

His top pick was Somboon Advance, which makes brake discs for Mitsubishi Motors and is trading at 8.4 times forecast earnings, below the 11.5 sector average and the than 8.9 times of Thai Stanley and 11.5 times of AAPICO Hitech.