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Volkswagen: Russia to become the biggest car maker in Europe

ussia will overtake Germany as Europe's biggest car market within two years, according to the Head of Volkswagen. Comments came as VW opened its first car plant in Russia.

It's located in the Kaluga region, about 160 kilometres from Moscow, and VW plans to use it to triple its market share in Russia to 10% in the next 3 years. Eventually 5,000 workers will build 150,000 cars a year.

The plant will build Volkswagen Passat and Skoda Octavias at first.

“We are not the first and not the last, we are coming at the right time!” observed Friedrich Lenz, the director of Volkswagen Russia.

Volkswagen sales in Russia jumped a huge 75% year on year in the first nine months of 2007.

But even with this growth, the German car giant took some outside funding to boost its production in Russia.

The European Bank for Reconstruction and Development has lent Volkswagen $US 1.12 billion for the project, the largest loan in the EBRD's history.

But Volkswagen’s Chairman Dr. Martin Winterkorn says the company’s huge investment in Russia is a two-way street, as it’ll create up to 5000 jobs in the Kaluga region.

“There’s going to be a big boost from this move for the supply  and logistics industries, we’re also going to improve infrastructure and services. All these steps are very important for Russia as one of the world’s biggest car markets,” he promised.

The Russian government says by 2010 Russia will be assembling up to a million cars annually, overtaking the number of cars domestic firms produce from scratch.

And the Economic Development Ministry is not worried, in fact it supports this trend, saying assembling cars in Russia reduces the amount of vehicles imported from abroad.

The ministry is working on 20 agreements with global car makers on assembly projects and is looking for the best locations.