Volkswagen in Russia In the mid-2000s, Volkswagen announced that it would bring its Russian production up to 300.000 as well. In total, invest directly in automobile production in Russia. The foreign carmakers had invested more than $5 billion in decision to invest was driven by a number of factors. Russian assembly operations by 2014. Meanwhile, analysts Russia's economy was growing rapidly at the time and continued to predict that the Russian car market would grow living standards were rising. while the level of car owner- at a healthy pace and exceed that of Germany by 2020. ship per capita was still low by European standards. This (In 2014, however, the market took a sharp turn for the suggested that demand for cars would grow rapidly going worse. Russia is a major oil producer. Since the mid-2000s, forward. Indeed, forecasts predicted that by 2020, Russia much of the country's economic growth had been powered would surpass Germany to become the largest car market in by high oil prices. In the second half of 2014, however, global Europe. Moreover. Volkswagen's global rivals, including oil prices started to fall rapidly as increased production in most notably Toyota, General Motors, and Ford, were also America and weak demand in China conspired to create a investing in production facilities in Russia, so Volkswagen global glut of oil. By 2016. oil prices had fallen 80 percent felt that it had to make direct investments in order to from their peak. To make matters worse, following hard on avoid being preempted by its rivals. the heals of its hostile takeover of the Crimea region from The Russian government also created incentives for Ukraine, Russia had become embroiled in a smoldering civil carmakers to invest directly in Russian production facilities, war in eastern Ukraine. Western nations responded to what allowing them to avoid import tariffs and a punitive tax on they perceived as Russian aggression by imposing sanctions imports of parts if they produced at least 25,000 cars in the on Russia. Hit by these twin blows, the Russian economy country. In 2011, the government announced that it would weakened significantly in 2014 and 2015, and the ruble de- keep tariffs on imported components at 0.3 percent if a for clined precipitously, losing 50 percent of its value against the sign automaker built at least 300,000 in the country by 2020 U.S. dollar. Suddenly the bright hopes that foreign automak- and produced 60 percent of the value of the car locally. ers had for the Russian market seemed to be tarnished. Spurred on by such incentives, in 2007 Volkswagen Faced with falling demand, Volkswagen cut produc- opened a plant in Kaluga, 160 miles southwest of Moscow, tion at its Kaluga plant to 120,000 vehicles from a to build some of its VW and Skoda car brands. The plant planned 150,000. With the new engine plant scheduled to was projected to have a peak capacity of 150,000 units a come on line and no resolution to Russia's economic cri- year and employ 3,000 people. Initially, all vehicles at the sis insight. Volkswagen's excess capacity problem may get plant were assembled from semi-knocked-down kits im- worse. Looking forward, Volkswagen has to decide ported from Germany. In October 2009, however, the whether to keep investing in Russia in order to hit the plant launched full-scale production, including welding and painting of vehicles. In October 2011, Volkswagen an- magic 300,000 local output figure by 2020 or to pull back nounced that, together with a local partner, GAZ Group. from a market whose future suddenly looks highly uncer it would open a second plant near St. Petersburg as it tain. At this point, it looks as if Volkswagen is staying the strove to reach the 300,000 units of local production by course. In late 2015. a Volkswagen board member noted 2020. In 2013, Volkswagen made an additional invest- that "We need to continue to strengthen our partnershi ment in Kaluga when it pledged (300 million to build an (in Russia) despite the current situation." engine plant near to its assembly operation. The engine Sources plant opened in September 2015. All told, by this point Volkswagen had invested more than Sarah Sloat, "Volkswagen to Halt Production at Russian Pla $ 1 billion in production in Russia. General Motors and Toy- for 10 Days." The Wall Street Journal, September 7, 2014: Ch ota had also announced investments of more than $1 billion Nuttall, "Foreign Car Firms Invest Heavily in Russia," The T to boost Russian production up to 300,000 units by 2020, graph, April 28. 2011: "Volkswagen Russia Shows the W and Fiat had indicated that it would make investments to Automotive Supply Chain, July 2. 2013; "Volkswagen Slashes Production at Russian Plant," Reuters, September 7, 2014