Czech Republic's largest car manufacturer to conquer Russian market with new assembly plant

Russian Economy Minister German Gref and Skoda Auto's Detlef Wittig, photo: CTK

The Volkswagen Group and Skoda Auto are planning to conquer the Russian market. On Monday, a contract was signed to build an assembly plant in the city of Kaluga, some 160 km southwest of Moscow. So how will this affect the Czech Republic? Skoda Auto is the Czech Republic's largest car manufacturer and has been in the Volkswagen Group since 1991. Some 27,000 Czechs are currently employed in the car giants' manufacturing plant in the town of Mlada Boleslav, north of Prague. Dita Asiedu reports:

Photo: CTK
Russia has become a very attractive market for the world's leading carmakers. Last year alone, the sale of new foreign cars grew by 60 percent. Car giants such as Ford and Renault have already built plants there and General Motors announced this week that it will do the same. It is only natural then that Skoda Auto and the Volkswagen Group are joining the club. Though not confirmed by the carmakers themselves, they are reportedly investing over 400 million euros in their new plant. Roman Meliska is from Skoda Auto's Corporate Communications department:

"The new plant is important because the Russian market is growing fast and to be competitive on the market and be able to offer competitive prices and attractive packages for customers you really need to produce locally because there are duties on imported cars that increase their sales price by 25 percent and that is a huge difference."

In simple terms, Skoda Auto's cars would be built in Mlada Boleslav, taken off the production line, disassembled, exported to Russia in pieces, and reassembled at the new plant. With this, the carmaker avoids the 25 percent customs tax and only pays a 3 percent duty on the assembly components, cutting the local sales price of Skoda cars in Russia by 15 percent. Lyle Frink is a writer for Automotive News Europe:

"Skoda has a new kit logistics centre in Mlada Boleslav and this means that they will be able to prepare for shipping up to 50,000 cars a year. The factory that Volkswagen plans to start in Russia will begin by assembling Skoda Octavia cars from kits and then will move into more complete car production in a few years."

In the future, other Skodas such as the Fabia and Superb will also be assembled; Volkswagen will use the plant for its Polos, Passats, Touaregs, and an unnamed model specifically manufactured for the Russian market. The new plant is to start operation in the middle of next year. Simultaneously, the Volkswagen Group and Skoda Auto are going to build a complete manufacturing plant including welding, painting and assembly shops, the operation of which is planned to start in the first half of 2009.

Russian Economy Minister German Gref and Skoda Auto's Detlef Wittig,  photo: CTK
Plans are to increase the number of Skoda models sold in Russia from the current 10,000 a year to 30,000. But although the assembly of models for the Russian market that was previously carried out in Mlada Boleslav will now be done locally, the Czech Republic will not suffer, says Skoda Auto's Roman Meliska:

"Due to the fact that Skoda Auto and Volkswagen will be able to increase the sales volume in Russia, because the prices will then be more competitive with the local production, all components will be produced in higher volume. This means that the working places in the Czech Republic in Skoda Auto factories could be seen even as more secure with the new volume and the new factory in Russia and in other countries."

The Volkswagen Group and Skoda Auto already have assembly and manufacturing plants in Ukraine, Kazakhstan, Bosnia, and China. Another is currently being built in India. With the help of these plants, the Mlada Boleslav factory hopes to double production in the next decade to reach one million cars a year.