Volkswagen Cuts Production at Russia Plant Over Declining Wages

Sep 08, 2014 11:30 AM EDT | Matt Mercuro

Volkswagen is cutting back car production at its plant in Kaluga, Russia over weakening rouble and declining real wages.

The automaker is set to lower production at Kaluga to 120,000 vehicles this year, compared with the 150,000 originally planned, German-industry magazine Automobilwoche reported this weekend, without naming sources.

The Kaluga plant is responsible for making the Volkswagen Polo and Tiguan models, along with the Skoda Fabia and Octavia, according to Reuters.

A Volkswagen spokesman said the automaker is temporarily reducing production volumes at Kaluga due to the economic situation in Russia, according to Reuters.

A 10-day shutdown will start on Sept. 8.

"Nevertheless Volkswagen Group is fully committed to the Russian market and is consecutively fulfilling its investment programme in Russia," the spokesman added.

A new body shop opened at Kaluga earlier this year and engine production in Kaluga and a new depot in near Moscow will start operating sometime next year.

The German magazine said Opel's board member responsible for sales, Peter Christian Kuespert has expressed his concerns about Russia, one of Opel's biggest markets in Europe, compounded by Moscow's intervention in Ukraine.

"There is no doubt that the situation in Russia is a concern. The market has shrunk substantially over the past few months and the Ukraine crisis has added to the uncertainty," Kuespert told the magazine.

Auto parts suppliers have seen a decline in orders, and have started putting off investment plans in Russia, Automobilwoche reported.

Since the mid-2000s, foreign automakers have invested more than $5 billion in setting up local production in Russia, according to Reuters. The government encouraged the trend by lowering tariffs on parts and raising import duties for vehicles.

U.S. automaker Ford Motor Co, France's Renault SA, Japan's Toyota Motor Corp and South Korea's Hyundai Motor Co also produce locally, among other companies.

Avtovaz, Russia's top automaker, previously confirmed it as going to cut production of its Lada vehicles before the end of the year due to a falling Russian market.

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