Updated August 27, 2008

   The German auto concern Volkswagen is planning to expand its production in Russia. The corresponding statement was made during the opening of the International Moscow Auto Salon 2008.

   Though VW' s a

ssembly in Kaluga hasn't reached the maximum capacity yet, it doesn't impede the company to make plans of the further increase

of the cars output.

   Within the nearest two years, Kaluga's assembly should reach the mark of 150 000 cars a year. The company management is convinced that it

is not enough, since the demand for the new cars in Russia accelerates, therefore VW is already preparing the additional capacities to increase the annual volume of sales in Russia to 200 000 cars by 2009-2010.

   The aim of the largest Europe's automaker is the top position at

the Russian market. At the moment, the German concern managed to occupy 4% of the market.

If VW wants to become the leader, it has to expand its presence at the market to at least 10%. The company is planning to expand the chain of sales and to enter the Russian regions.

   In December of the previous year, the auto concern Volkswagen launched its assembly in Russia. The new enterprise is located in the suburb of Kaluga, in the so-called Grabtscevo technical park.

Then, Kaluga's assembly started the production of two makes – Volkswagen Passat and Skoda Octavia.

66 000 of cars are planned to produce within 2008. Later, the more compact Volkswagen Jetta, Skoda Fabia and, finally, the sedan of C class developed on the basis of Volkswagen Polo will join this range of cars.

Expert comments

Konstantin Romanov, Finam Investment Company analyst

The key issue is a desire to invest facilities in the development of the Russian production. The available lending is enough on the background of the growing market, and since VW's cars have the certain image and

their quality meets the technical requirements, the company has all chances to realize the plans it has announced.

The core r isk

is the competition growth as other western auto concerns launch their new production capacities.

If VW wants to have some advantages, the company has either to construct a new trading floor or to expand the already existing ones. Moreover, the price factor is also important, as

the company has to solve the issues of localization, because, for instance, the latest statements of Russia about WTO may lead

to the troubles with the import of components.