Volume manufacturers look to Russia

Some of the world's 'cleverest' money is being spent on new automotive production plants in Russia.

Look at the names: Volkswagen, Hyundai and PSA Peugeot-Citroen, to name the three newest. Then there are the Chinese firms you've never heard of, cosying up to the Russians.

Russia, the world's largest country by area, spans two continents (Europe and Asia), presenting its own distribution problems for mainstream vehicle manufacturers -- problems not completely dissimilar to those experienced in Australia, but without Australia's concentration of population in easily accessible parts.

Given Russia's population density, remote localities and strong economy, local manufacturing within the country's borders is increasingly viable. Last year, the market exceeded two million unit sales, representing a 20 per cent improvement on the figure for 2005. Current trends indicate that the Russian market will approach the German market for size by 2010. That would be around three million vehicles.

Hyundai has committed to a manufacturing plant at St Petersburg, with construction of the facility to commence during the first half of 2008. St Petersburg is already home to a manufacturing plant building the Focus for Ford, another building the Camry for Toyota, a third operated by Nissan and a fourth currently under production for General Motors and anticipating commencement of SKD (semi-knocked down) operations in November 2008.

Hyundai has set aside US$400 million for the project and points to its success in Russia -- as the country's third most popular imported brand -- for the initiative to build cars locally.

For 2007 year-to-date, Hyundai sold 130,166 units, a 146.4 per cent improvement on sales for 2006, YTD.

"Though we've performed well so far, our future prospects for growth in the Russian market depend on getting closer to our customers. This plant will allow us to better serve our customers and will ensure our success in one of the world's most dynamic and fastest-growing economies," said Hyundai Chairman Chung Mong-Koo.

Volkswagen and its Czech subsidiary, Skoda, will assemble the Passat and the Skoda Octavia at a new plant at Kaluga, approximately 200km south-west of Moscow.

The Kaluga plant -- situated on a 400 hectare site and setting back Volkswagen to the tune of 500 million Euro -- is already running and an inauguration ceremony was held at the end of November (pictured). Construction of the facility took precisely thirteen months from inception.

Volkswagen plans for the factory's first development stage (assembly) to complete 66,000 units of Passat and Octavia per annum, with that figure rising to a maximum of 150,000 units in 2009, when the second development stage comes on line. The second development stage will introduce body shop, paint and final assembly production phases.

According to Reinhard Jung, Chairman of the Board of Directors of Skoda Auto: "For Volkswagen and Skoda, Russia is a strategic emerging market. The fact that Skoda has begun to produce the Octavia here is an important signal for the further development of our brand."

French group PSA Peugeot Citroen is the latest to announce an interest in Russia, with a decision to set up a factory, also in Kaluga.

The facility will build mid-size Citroens from 2010 when it opens for business. Mid-size cars account for 60 per cent of all automotive sales in Russia and Citroen plans to sell 100,000 units from 2010, rising to a forecast of 300,000 per year, subsequently.

Other global manufacturers operating plants in Russia include Isuzu, Renault, Tata and Chinese brand, Chery.