SAO PAULO (Reuters) - Volkswagen AG (VOWG.DE) plans to produce its first SUV in Brazil, it said on Wednesday, betting on a rebound in Latin America’s market despite signs of caution from rivals such as Honda Motor Co (7267.T).

The Volkswagen logo is seen on a vehicle at the New York Auto Show in the Manhattan borough of New York City, New York, U.S., March 29, 2018. REUTERS/Shannon Stapleton

VW said in a statement it will invest 2 billion reais ($595 million) to manufacture the T-Cross compact SUV at its Sao Jose dos Pinhais plant in southern Brazil.

It will start selling the T-Cross in the first half of 2019, it said, adding that the project is part of 7 billion reais of planned investments through 2020 to refresh the line-up in its “largest product launch offensive ever” in Brazil.

VW’s market share in Brazil has shrunk over the past decade as new entrants opened local factories just as a recession took hold. An export-driven rebound in the sector last year and record-low interest rates have renewed hope for some global carmakers.

Not everyone is convinced. Honda said separately that it will consolidate all vehicle production in its Itirapina plant, converting a 20-year-old factory in Sumaré from vehicles to engines and other parts.

The transition should be complete by 2021 at the plants, both of which are located in the state of São Paulo.

Honda announced the new Itirapina plant earlier this decade as a way to double capacity in Brazil amid booming domestic demand, but the downturn interfered with the plans, a press officer said on Wednesday.

On Tuesday, the government said Brazil’s industrial output expanded in February at the slowest pace in five months, underscoring an uneven pace of economic recovery in the first quarter of the year.

Honda’s Itirapina plant was finished in April 2015 with capacity to produce 120,000 vehicles per year in two shifts, but the carmaker has so far kept the lines there idle.

“Though the local market recently recovered, the growth outlook remains below volumes previously forecast,” Honda’s statement said.

Reporting by Ana Mano; Editing by Brad Haynes and Susan Thomas

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