Volkswagen Opens Kaluga Factory

Itar-TassKaluga Governor Anatoly Artamonov, left, with VW's Russia chief, Friedrich-Wilhelm Lenz, at the plant Wednesday.
KALUGA -- Volkswagen, Europe's largest carmaker, opened a factory in Russia on Wednesday as it seeks to triple its share of the country's market over the next three years and joins rivals Ford and Renault in beginning production in one of the fastest growing car markets.

"By 2010, 45 million Russian households will be able to afford an automobile," chief executive Martin Winterkorn said at the factory's inauguration in Kaluga, 160 kilometers southwest of Moscow. This country "has huge potential, and we are going to use it."

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 fueled demand, according to PricewaterhouseCoopers.

"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."

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, the world's biggest carmaker, is building a factory on the outskirts of St. Petersburg that will produce 70,000 cars per year, while Toyota, 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 eventually to assemble 150,000 vehicles at the factory. The carmaker will start by building the Passat mid-size 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 ($15,000).

The expansion is part of Winterkorn's global push to increase sales to 8 million vehicles worldwide by 2010 and challenge Toyota. 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.

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