Volvo to Open Truck Plant in Kaluga

BloombergA new Volvo plant will be able to produce 15,000 vehicles per year, three times more than estimated demand.
Sweden's Volvo Trucks will open a new factory in the Kaluga region on Monday, even as the country's largest domestic truck maker idles its assembly lines for almost a month due to a sharp drop in demand.

Analysts have faith in the project's long-term viability but said it may run into trouble in the short term. The 100 million euro ($133 million) facility can produce 15,000 vehicles per year.

In recent months, the global financial crisis has hammered retailers and construction companies, two of the truck market's largest consumers, leaving producers of commercial vehicles unable to turn around their stockpiles. In December, KamAZ, Russia's largest truck maker, halted production at its factories for one month, forecasting a 40 percent decline on the Russian truck market in 2009 and seeking to clear its inventory before producing any more machines.

Vladimir Samoylov, a spokesman for KamAZ, said the underlying strategy of Volvo's move was sound. "You don't have to pay customs duties on automobiles assembled in Russia. … Eventually [the Kaluga factory] will start making money."

Ernst & Young analyst Ivan Bonchev said Volvo has an advantage over KamAZ because most of its customers need trucks for long-distance hauling rather than servicing construction sites.

He estimated that Russian demand was strong enough to absorb about 5,000 Volvo trucks per year.

Volvo's short-term plans have not been made public, but spokesman Oleg Vasilchenko said the new factory might stay below its maximum capacity of 15,000 units.