Car giants get wheels rolling on new plant

Peugeot Citroen and Mitsubishi Motors have begun work on their new half-billion dollar car plant in Russia's Kaluga Region. The two companies are expected to get half of their materials locally as component manufacturers rush to build feeder plants in the

The government has signed 23 agreements on car and spare parts production in Russia, which is expected to attract 6.5 billion dollars of investment. Some projects have already begun production while others, such as Peugeot Citroen, are just preparing the ground.

Peugeot Citroen together with Mitsubishi Motors have laid the first stone of what in two years will be an assembly plant in Russia worth 470 million euros.

The first vehicle will appear off the assembly line in 2011 and the range of models includes Peugeot 308, Citroen C4 and mid range SUVs.

Peugeot Citroen was one of the last foreign manufacturers that managed to sign an agreement with the Russian government in January this year that guarantees extremely low import duties on components.

That concession comes with several obligations. Сar producers should gradually localise their production, increasing the share of Russian made parts in their vehicles to 50% in seven years. So, choosing a neighbourhood with many component producers was key to choosing a location for the new plant.

Although Peugeot Citroen welcome supplies from both foreign and domestic component producers, experts say domestic manufacturers can’t provide the necessary volumes and quality.

Foreign component producers are already planning to establish production in Russia – which is expected to become Europe's biggest car market within two years. And the first to set up shop will find the carmakers waiting for them.