PRAGUE -- Skoda is expanding the range of cars it will assemble in Russia to include the first-generation Octavia.
Complete knockdown (CKD) production starts with the second-generation Octavia this month at the Volkswagen group plant in Kaluga, 160km southwest of Moscow.
“We are planning on starting production of the Tour one month later,” Skoda Production and Logistics Director Horst Mühl told Automotive News Europe.
Skoda calls the first-generation of the car the Octavia Tour to differentiate it from the second-generation model, which was launched in 2004.
The addition of the Octavia Tour will give Skoda a lower-priced car for the hot Russian market, where foreign-brand cars are taking most of the growth. Last year, sales of domestic brands were flat at 800,000 cars but foreign-brand sales jumped to 1 million from 560,000 in 2005, according to PricewaterhouseCoopers.
VW group will assemble the Octavia Tour from painted, knockdown kits imported from Skoda’s Czech factories. Russia is the latest assignment in a price-sensitive market for the Tour.
The car that will not die
Call the Octavia Tour the car that won’t die. Skoda decided to continue making decontented versions of the sedan and station wagon as a lower-price line parallel to the new model as the brand pushes into eastern Europe and other emerging markets. In Romania, the Octavia Tour competes against the Logan, which is locally built by Renault subsidiary Dacia.
Skoda plans to build it until “at least” 2010, roughly when a third-generation car is due to replace the new Octavia.
But unlike previous similar holdover strategies at other carmakers, demand for the old car is steady. The smallest of Skoda’s three Czech assembly plants, Vrchlabi, builds only the Octavia Tour and continues to ship knockdown kits from the Czech Republic to plants in Ukraine, India, Bosnia, and Kazakhstan.
Last year, Skoda increased production of the Tour 4.2 percent to 69,124 units, including knockdown kits. Vrchlabi is working three shifts.
Avoiding import duties
The €370 million Kaluga plant is crucial to VW group’s plans to sell 300,000 cars annually in Russia by 2010. Russia is a price-sensitive market and cars made there escape the 25 percent duty on imported whole cars.
By opening the Kaluga plant under Russia’s Decree 166 tax provision and agreeing to boost locally produced content within eight years, VW will pay a 3 percent duty on imported components instead of 14.5 percent, according to a recent VW presentation to financial analysts.
VW group’s original plan for Kaluga was to start making new-generation Octavias from kits this month, then in early 2009 add the Volkswagen Gol, a low-cost car sold in South America.
But the plant will make both new and old Octavia models from kits and a third Skoda model is being considered.
“If it is financially OK, we will go in with our Fabia [small car,]” said Mühl.
Starting with an initial output of about 20,000 cars a year, VW will expand capacity in Russia to 115,000 units by 2009. VW wants the factory to handle welding, painting and assembly by then.