The Kaluga Volkswagen (VW) plant has announced that it will launch a full assembly line, following up the Volkswagen Tiguan and Skoda Octavia with a new VW economy model. Prime Minister Vladimir Putin was one of the first to see the new model during his visit to the plant.
Since 2007 the VW plant in Kaluga has been assembling cars by joining the finished body to the running gear. "The new line can assemble as many as five models simultaneously," Vladimir Schultz, the Volkswagen-Rus head of the localization and technical development department, explained to the Prime Minister. Currenty the Skoda Octavia and Volkswagen Tiguan are in production. By late 2010 the Passat and Skoda Fabia will be launched. The fifth model will be the VW economy model developed specially for the Russian market. Production is scheduled to begin in May 2010. "It will be a sedan based on the Polo and similar to Jetta, with a tentative price of 440,000 roubles," Mr Schultz explained, adding that the name of the car has yet to be finalized. A Jetta costs about 600,000 roubles. The unnamed model was shown only to Prime Minister Vladimir Putin during his visit to the plant yesterday.
"I promised not to say anything, but I can tell you that I liked it. It is a promising model both in terms of quality and price," he said. Before the crisis VW projected that it would produce 80,000 economy class cars in Russia every year. It has since revised its plans. VW intends to boost local content to 25% in 2010 and to 30% in 2012.
Ford has the highest local content at present (30%), says Ernst and Young analyst Ivan Bonchev. Ford's website lists 27 suppliers operating in Russia. Since the beginning of the year the plant has been getting stamped parts from the Stadco plant, which has begun production in the Leningrad Region. The local content of Logan built at Avtoframos has reached 41%, says a Renault representative. The plant buys large stamped parts from the ZIL plant.
VW will buy stamped parts from the joint venture between the Spanish-owned Gestamp and Russia's Severstal. Production of 140 body and cabin parts may begin at the new plant in Kaluga in May-June 2010.
In 2008 the Russian VW plant assembled 63,000 cars. "We hope to maintain that level this year," Mr Schultz told Reuters. The plant plans to expand its workforce from 1,800 to 3,000 next year.
Schultz added that the plant has the capacity to produce 150,000 cars and, if demand grows, 300,000 cars. Mr Bonchev says that these are "bold plans" considering the 50% drop in demand. However, VW's business strategy differs from those of other foreign car makers with plants in Russia: Ford, Toyota, Nissan, General Motors and Renault produce one or two models each, while the Russian VW plant produces 18 models, according to a company representative. That allows VW to save on custom duties and to have a more flexible pricing policy. Volkswagen Group is one of the few concerns in Russia that has managed to increase its market share in a shrinking market. According to the AEB, Volkswagen increased its market share by a record 1.3% between January and August 2009.
Mr Bonchev notes that owing to its wide variety of models in practically all price segments, VW is able to respond quickly to changes in the market. Before the crises mid-priced cars ($20,000-25,000) and premium-class cars were the fastest growing segments. Now there is a tendency towards economy-class cars in the 10,000-15,000 price range. This is exactly where VW is headed. Mr Bonchev says that the demand is certainly there. The cars running on Russia's roads are old and the penetration rate is not high: 220 cars per 1000 (compared with 400-500 in Europe and 600 in the US). VW is also mindful of the Russian preference for big cars. VW wants to produce an affordable car with impressive dimensions.
The stated capacity of all existing plants and plants under construction in Russia is 2.6 million cars a year. This year about 1.3 million cars will be sold. But VW has faith in Russia. The market will grow by 30% between 2008 and 2018, with annual sales reaching 3.6 million cars, said Martin Winterkorn, president of Volkswagen Group. Mr Winterkorn believes that the Russian market will eventually be among the five largest in the world. Mr Bonchev does not share the president's optimism, pointing out that it will be at least five years before the Russian economy returns to the pre-crisis levels. Perhaps foreigners count on government support, Bonchev adds, for example lifting price caps on low-interest loans.
Anastasia Dagayeva, Maxim Nepomnyashchyi