India's biggest carmaker Maruti is to hold a 70% stake in a new joint venture with its parent, Suzuki, to take advantage of the booming car market.
Maruti has captured 50% of the market in India
Suzuki has a 54% stake in the Maruti firm, which has half the share of the Indian market with its small, cheap mass-produced cars.
The news allayed fears that the Japanese group had been planning to look arms elsewhere.
A new manufacturing unit will open in 2007, making 250,000 cars a year.
The new plant will be located in Manesar in the northern state of Haryana.
Spreading the risk
Analysts said the announcement would help ward off fears investors have held about the future of the company.
Maruti chairman Shinzo Nakanishi said the new venture was needed to raise the 60bn rupees ($1.30bn) needed to expand in India over the next five years.
Starting a joint venture spreads the risk from rising competition across two companies.
"Right now, Maruti's reserves are 20 billion rupees and this is not enough," Mr Nakanishi said.
"This new company will make bigger cars, which means tough competition and another risk. So the mother company has decided to participate."
Suzuki will also spend 10bn rupees to set up a new diesel engine plant in India for local and foreign markets.