Volkswagen, General Motors to build factories in Russia

Russia signed an agreement with Volkswagen for a car production plant Monday and appeared on the verge of a deal with General Motors as foreign auto makers continued to boost their operations in a nation whose emerging middle class is shunning domestically designed models.

Volkswagen AG's chairman Bernd Pischetsrieder signed an agreement with Trade and Economic Development Minister German Gref to build a nearly Ђ400 million (US$510 million), 115,000-vehicle plant in the city of Kaluga, southwest of Moscow.

"The decision took a long time ... this was not a fast path and our competitors have overtaken us to an extent we'll have to be all the more active," Pischetsrieder said. VW had announced its deal to build a plant in Kaluga on Friday, after also considering four other locations.

"I hope your activity in Russia will be successful," President Vladimir Putin told Pischetsrieder during a Kremlin meeting, according to the state-run RIA-Novosti news agency. "I'm very glad that such a major concern as Volkswagen has come to the Russian market."

According to the Trade and Economic Development Ministry, the German carmaker will initially spend Ђ270 million (US$345 million) on the plant, with a further Ђ100 million (US$128 million) to be invested to launch full-scale production.

A spokeswoman for Gref's ministry said the facility would be commissioned in September 2008, and would initially assemble the Skoda Octavia but would eventually roll out VW's Polo, Passat and Touareg brands, which are popular in Russia. Construction is to begin in August, she said.

Gref said VW was planning a "gift" for Russian drivers. "The company has plans to roll out a special car for the Russian market," he said in televised comments, reports AP.

O.Ch.