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. Last Updated: 07/27/2016

Volkswagen to Assemble Skodas in Stupino

autoua.netThe Skoda Octavia is set to be the first model to be assembled at the plant Volkswagen plans to build in Stupino.
Europe's largest carmaker, Volkswagen, said Monday that it planned to begin assembling its Skoda model in Russia in a bid to boost its share of the country's booming car market.

The move makes Volkswagen the second major carmaker to announce an investment into Russia within the span of a week, with Italy's Fiat saying just days ago that it also planned to start car production in Russia in 2007.

Speaking at Detroit's International Motor Show over the weekend, Volkswagen chief executive officer Bernd Pischetsrieder told reporters the company planned to start work later this year on a new facility at Stupino, south of Moscow.

The plant is expected to reach a full annual production capacity of 250,000 cars within five years, kicking off with the Octavia model, which is part of the Skoda brand, Pischetsrieder said.

The plans are subject to the approval of its supervisory board, which meets in February, Volkswagen spokesman Hartwig von Sass said by telephone from Detroit.

Volkswagen declined to say how much it planned to invest in Russia.

Ending years of speculation over a move into Russia, Volkswagen is the latest in a long line of major international car companies to move manufacturing to Russia to benefit from low costs.

The market for lower-end models has been growing at an explosive rate in Russia, with the burgeoning middle class thought to have splashed out over $22 billion on cars last year, according to an estimate from PricewaterhouseCoopers.

Big names including Ford, General Motors, Renault, Hyundai and BMW have already moved manufacturing to Russia, and are soon to be followed by Toyota, which is due to start manufacturing in 2007.

When the plant opens, VW plans to assemble its cars using imported parts, said von Sass, adding that it would start producing components locally within the next five years.

The plant will eventually move into production of the Gol, a Volkswagen model already sold in Brazil, von Sass said. Volkswagen may export the Gol from Russia, he said.

The carmaker is aiming to raise its market share to 10 percent, from around 2 percent currently, von Sass said, declining to say when the 10 percent target might be achieved. Analysts said the target could be met within five to seven years.

The Volkswagen Group, which includes Skoda, Audi, VW and commercial vehicles, sold 18,500 models in Russia in 2004, said von Sass, adding that figures would be up significantly in 2005.

In terms of the amount being invested, Frankfurt-based analyst Patrick Juchemich of privately owned bank Sal.Oppenheim pegged investment at over 100 million euros. "Some 110 to 130 million [euros] should be the initial maximum," he said.

A report in German financial daily Boersen-Zeitung said VW planned to sink 330 million euros ($386 million) into its Russian plant, Reuters reported. That amount would make VW the largest foreign automotive investor in Russia to date.

Munich-based car analyst Albrecht Denninghoff of HVB welcomed the decision, saying VW could export Russian-made models to emerging markets close to Russia, such as Ukraine, Turkey or Iran. "It's good that they've waited for so long," Denninghoff said. But he warned that "at this stage, there's still a considerable risk," with the political situation possibly becoming less stable.

Outlining its production plans for Russia, Fiat said in a recent statement that it planned to start building two of its models in Russia in 2007.

Best known in Russia for its role in helping build the country's largest carmaker, AvtoVAZ, in the 1970s, Fiat now plans to join forces with Severstal-Avto, first to import Fiat models and later to move to production in Russia.

Severstal-Avto will distribute the full range of Fiat cars and light commercial vehicles. It will then start assembling the Palio and Albea models at Severstal-Avto's ZMA plant in Naberezhniye Chelny, in Tatarstan.

In late December, Severstal-Avto said it would stop production in July of its diminutive Oka car, which has often been customized for the disabled, Interfax reported.

Fiat did not disclose the amount of cars it planned to make in Russia, but a company spokesman in Turin said it planned to first make a few thousand models to test the market.

The Italian carmaker's partnership with Severstal-Avto will be Fiat's second attempt to gain a foothold in Russia. In 1997, Fiat agreed to make passenger cars with GAZ, but the 1998 financial meltdown thwarted the plans.

Fiat cars also have something of an image problem in Russia after a group of disgruntled consumers started a campaign against the company, complaining about the poor quality of Fiat models distributed through unauthorized dealers. The Fiat spokesman acknowledged the company had had problems in the past and said that "all the people who worked then" were no longer with the company.

The two Fiat models, priced between $8,000 and $12,000, will be put together from parts produced by Tofas, Fiat's partner in Turkey, the spokesman said.

Sal.Oppenheim's Juchemich said Fiat cars would sell well in Russia "as long as they remain competitive via their pricing."

Major Foreign Automotive Projects
MakerInvestmentProduction start dateAnnual outputLocation
Toyota$140.5 million200750,000 cars, including 20,000 CamrysShushary, near St. Petersburg
Renault$250 millionApril 200560,000 Logan modelsMoscow
Ford$230 million200260,000 Focus modelsVsevolozhsk, near St. Petersburg
GM-AvtoVAZ joint venture$332 million200275,000 Chevrolet Niva and Viva modelsTolyatti
Source: MT