Volkswagen begins construction of car assembly plant in Russia

Volkswagen AG, Europe's largest carmaker, began building a €370 million ($471 million) Russian assembly plant as the company seeks to increase sales. Pischetsrieder attended a groundbreaking on Saturday in Kaluga, 160 kilometers (99 miles) southwest of Moscow, with Russian Economics Minister German Gref. The Wolfsburg, Germany-based carmaker, which signed a contract with the Russian government in May to build the plant, plans to assemble 115,000 vehicles annually at the factory beginning in 2009. Carmakers are expanding in Russia as economic growth encourages spending. Automobile sales will almost double to 2.8 million vehicles a year by 2010, according to a forecast by Troika Dialog, a Moscow-based brokerage.

Volkswagen follows competitors such as Toyota Motor Corp., which is investing €113 million ($144 million) to open a factory in Russia, and Renault SA, which opened a €197 million ($250 million) plant in Moscow in April 2005, in setting up new plants. Volkswagen's namesake brand will develop an entry-level car specifically for the Russian market to be built at the plant. The vehicle will be based on the Polo small car and sell for less than €10,000. The plant will also build the Skoda brand's Octavia model. The plant, which will eventually employ 3,500 people, will begin assembling cars from kits in the second half of 2007. Car-body construction and painting operations will be added in the beginning of 2009. (Bloomberg)