Volkswagen Opens a Russian factory

From Bloomberg this morning:

Volkswagen AG, Europe's largest carmaker, opened a Russian factory today as it seeks to triple its share of the country's market over the next three years and joins rivals Ford Motor Co. and Renault SA in beginning production in one of the fastest growing car markets.

``With the start of assembly in our new plant, the Volkswagen group has definitely arrived in the Russian market, which has a lot of future potential,'' Chief Executive Martin Winterkorn said at the factory's inauguration in Kaluga, 160 kilometers (99 miles) southwest of Moscow.

Volkswagen, based in Wolfsburg, Germany, plans to increase its share of the Russian market to 10 percent in 2010 from 3 percent currently. The country is an important growth market for automakers as Russians spent a record $16 billion on new foreign cars in the first half as rising incomes fuel demand, according to PricewaterhouseCoopers LLP.

``Local production should help Volkswagen gain more market share, primarily because avoiding the 25 percent import tariff will make it more price competitive,'' said Michael Tyndall, an industry analyst with Nomura Securities in London who has a ``buy'' rating on Volkswagen shares. Volkswagen's market share in Russia is ``too low given its share of the global market.''

Russia's oil-fueled economy, which the government forecasts will grow 7.3 percent this year, is expanding for the ninth year. Ten-month foreign car sales in Russia surged 64 percent to 1.31 million vehicles. Ford, the world's third-largest carmaker, is spending $100 million to expand capacity at a St. Petersburg plant by almost 75 percent over the next two years. Renault, France's second-largest automaker, opened a $250 million Moscow plant in 2005.

General Motors, Toyota

General Motors Corp., the world's biggest carmaker, is building a factory on the outskirts of St. Petersburg that will produce 70,000 cars a year, while Toyota Motor Corp., the world's second-largest carmaker, is investing more than $150 million in a Russian plant.

Volkswagen will build 66,000 cars at the plant this year and plans to eventually assemble 150,000 vehicles at the factory. The carmaker will start by building the Passat midsized sedan and the Skoda Octavia at the plant, then expand production to the Skoda Fabia and a Volkswagen brand small car developed for the Russian market. All the cars will be sold for under 10,000 euros ($14,811).

The Russian expansion is part of Winterkorn's global to increase sales to 8 million vehicles worldwide by 2010 and challenge Toyota, the world's second-largest carmaker. Volkswagen, the world's fourth-largest carmaker, last night in Moscow raised its sales target for this year to a record 6.2 million vehicles from ``more than'' 6 million previously.

Russia, India

Winterkorn plans to invest 28.9 billion euros over the next three years to develop the new models, build the plant in Russia and also open a factory in India.

The Volkswagen brand currently ranks 14th in Russian car sales, while Skoda is 16th. Along with the new factory, the carmaker plans to expand its Russian dealer network. During this first phase of production, Volkswagen will assemble cars from kits, with full-scale assembly starting in the first half of 2009. The carmaker will invest a total of 500 million euros at the plant, which will eventually employ 3,000 people.

GM has a joint venture with OAO AvtoVAZ, Russia's biggest carmaker, making Chevrolet Niva small sport-utility vehicles, and licenses production of other models through Avtotor, a third-party assembler, in the Russian exclave of Kaliningrad.

GM said earlier this month that it may also build Adam Opel AG cars in Russia in the future as demand for the brand surges in the country. Russia is likely to become Opel's biggest market, overtaking Germany, the division's home country, GM Europe President Carl-Peter Forster said last month.

PSA Peugeot Citroen, Europe's second-biggest carmaker, has said it will choose a factory site in Russia before year's end. Peugeot now has ``two or three'' locations to choose from, Chief Executive Officer Christian Streiff said in September.