VW Aims for Half-Million Sales Mark in Russia

VIENNA – Volkswagen’s planned new engine plant in Kaluga, about 112 miles (180 km) southwest of Moscow, is the latest piece in the German auto maker’s strategy to reach annual sales of 500,000 vehicles in Russia.

Volkswagen Group Rus already operates a car plant in Kaluga, which assembles the VW Polo sedan and Tiguan cross/utility vehicle, as well as Skoda Fabia and Octavia cars from completely-knocked-down kits. The engine factory will be located near the car plant.

VW CEO Martin Winterkorn and Kaluga region Governor Anatoly Artamonov signed agreements for construction of the engine plant this week.

"Russia is the primary strategic growth market in Europe for the Volkswagen Group,” Winterkorn says during the signing ceremony. “By 2018 we intend to sell a half a million vehicles here annually.”

The German auto maker will spend €250 million ($314 million) to erect a 323,000-sq.-ft. (30,000 sq.-m) plant with annual capacity of 150,000 engines.

The factory initially will produce 1.6L EA 211 gasoline engines starting in 2015. Plans call for the production of crankcases, cylinder heads with integrated assembly and crankshafts, as well as the complete engine assembly, in Kaluga.

The plant will supply engines for the vehicles made in Kaluga as well as for VW and Skoda cars assembled by contract manufacturer GAZ in Nizhny Novgorod, Russia.

With the construction of the engine plant, Volkswagen is expanding its industrial commitment in Russia. At the same time, the group is fulfilling the targets agreed with the government in May 2011 in an ancillary agreement to Decree 166.

Known as the New Decree 166, it calls for at least 30% of vehicles built in Russia to be equipped with locally manufactured engines as of 2016.

Kaluga was one of four regions considered by Volkswagen for the project. VW also inspected sites in the Nizhny Novgorod, Vladimir and Ryazan regions in recent months.