RUSSIA: Germany's Volkswagen opens its first car plant in Russia

German auto stalwart Volkswagen has taken its first steps into Russia with the opening of its first plant 200km from Moscow. Germany's Volkswagen opened its first car plant in Russia on Wednesday (November 28), marking a milestone in Russia's accelerating foreign investment boom four days before voters elect a new parliament. Just 13 months after laying the corner stone on a greenfield site near Kaluga, 200 km (125 miles) southwest of Moscow, the 1 billion euro ($1.5 billion) factory will assemble 66,000 VW Passat and Skoda Octavia cars next year. Output will ramp up to 150,000 units in 2009, when a second full production line enters operation, creating a total of 5,000 jobs, as Wolfsburg-based VW targets a market share of 10 percent in Russia by the end of the decade from 3 percent now. For Russia's leaders, the opening offers an opportunity to show how foreign investment can change the lives of voters and present a more investor-friendly image for a country that often hits the business headlines for the wrong reasons. "This project is proof of Russia's steady economic progress," Deputy Prime Minister Sergei Naryshkin told the opening ceremony. "We have created welcoming conditions for firms, including with foreign partners, to get on with their work." Russia's often heavy-handed treatment of oil multinationals and recent history of punishing dissenting "oligarchs" has created a widespread impression in the West that the world's largest country is a no-go zone for foreign investment. Despite those concerns, foreign direct investment surged 91.3 percent in the first nine months of this year to $19.6 billion and capital investment are up by 19.6 percent year-on-year in October, far above overall economic growth of 7.5 percent. The auto sector is one of the most dynamic, with car makers attracted by tax breaks for assembly operations. Over time they will source components locally to supply a car market that, according to PwC, will be Europe's largest by 2011. Although mostly drawn by the huge sales prospects, VW Chief Executive Martin Winterkom stressed the new plant would provide the local people with hard-needed labour opportunities. "We for sure will need a management team that knows Volkswagen well, but a large part of the 5000 other workers will come from Kaluga," said VW Chief Executive Martin Winterkorn said. "There were many people in need of a job in the Kaluga region, and they give it to us, people now have a place to work," said Yevgeny, one of the locally-hired workers. With 45 million Russian households expected to own a car by 2010, competition on the market is already hotting up: Ford, one of the Detroit "Big Three", is boosting production of its Focus model near St Petersburg, where it will be joined by Japan's Mitsubishi Motors Corp, Toyota and Nissan, and Hyundai Motor Co of Korea. Sales of foreign car brands, including those built in Russia, surged 64 percent in the year to October to 1.3 million units, according to figures compiled by the Association of European Businesses (AEB) in Russia. State-controlled AvtoVaz is meanwhile losing market share after failing to modernise its range of clunky Soviet-era Lada models. It already makes sport-utility vehicles with General Motors, and has been holding talks to form an alliance with a Western partner. The European Bank for Reconstruction and Development, which bought 20 percent in VW's Russian unit and raised a 750 million euro syndicated loan -- its largest ever -- to finance the plant, says the project is a vote of confidence in Russia. Uncertainty over Russia's political future remains a concern, with investors keen to see continuity in economic policy when Putin steps down next March after his second and, under the constitution, final four-year term in office.

ITN Source | November 30, 2007

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