Volkswagen in Russia In the mid-2000s Volkswagen anmounced that it would invest

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Volkswagen in Russia In the mid-2000s Volkswagen anmounced that it would invest directly in auto-moblile production in Rumi& The decision to invest was driven by·m-mber of Russia's economy was growing rapidly at the time and living standerds were rising, while the level of for cars would grow rapidly going forward. Indeed, forecasts predicted that by 2020, Russis would surpass Germany to become the largest car market in Europe. Moreover, Volkswagen global rivals, including most notably Toyota, General Motoers, and Ford were also investing production facilities in Russia, so Volkawagen fel that it had to make direct investments in order to avoid being pre-empted by its rivals production facilities, allowing them to avoid import tariffs and punitive tax on i that it would keep tariffs on The Russian govenment also created incentives for carmakers to invest directly in Rusi parts if they produced at least 25,000 cars in the country. In 2011, the government announces of at least 300,000 in the country by 2020 and produced 60% of the car locally if a Soreign automaker built Spurred on by such incentives, in 2007 Volkswagen opened a plant in Kalugs, 160 milles southwest of Mosoow, to build some of its VW and Skoda car brands, The plant was projected to have a peak capacity of 150,000 units a year and employ 3,000 people. Initially all vehicles at the plant were assembled from semi-knocked down kits imported from Germany, In October 2009, however the plant launched full-scale production, incloding welding and painting of vehicles In October 2011, Volkswagen announced that, together with a local partner, GAZ Group, it would open a second plant near St. Petersbury, as it strove to reach the 300,000 units of local product by 2020. In 2013, Volkswagen made an additional investment in Kaluga when it pledged 300 million euros to build and engine plant neer to its assembley operation. Thje engine plant opened in September 2015. All told, by this point Volkswagen had invested over SI billion in production in Russia. General Motors and Toyota had also announced investment of over $1 billion to boost Russian production up to 300,000 units by 2020, and Fait had indicated that it would make investment to bring its Russian production to 300,000 units as well. In total, foreign carmakers had invested over $5 billion in Russian assembly operations by 2014. Meanwhile analysts continued to predict that Russian car market would grow at healthy pace and exceed that of Germany by 2020. In 2014, however, the market took a sharp turn for the worse. Russia is a major oil producer Since the mid-2000s, much of the country's economic growth had been powered by high oil prices. In the second half of 2014, however, global oil prices started to fall rapidly as increase production in America and weak demand in China conspired to create a global glut of oil. By early 2016, oil prices had fallen 80 per cent from the peak. To make matters worse, following hard on the heels of its hostile takeover of the Crimea region from Ukraine, Russia had become embroiled in a smouldering civil war in eastern Ukraine. Western nations responded declined precipitously, losing 50% of its value against US dollar. Suddenly the bright hopes Faced with falling demand, Volkswagen cut production at its Kaluga plant to 120,000 to what they perceived as Russian aggression by imposing sanctions on Russia. Hit by these twin blows, the Russian economy weaken significantly in 2014 and 2015, and the ruble that foreign auto-makers had for Russian market seemed to be tarnished. vehicles from a planned 150,000. With the neww engine plant scheduled to come on line and no resolution to Russia economic crisis insight, Volkswagen excess capacity problem may get worse. Looking forward, Volkswagen has to decide whether to keep investing in Russia in order to hit the magic 300,000 local output figure by 2020 or pull back from market whose future suddenly looks highly uncertain. At this point, it looks as if Volkswagen is staying the

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