MOSCOW (Bloomberg) -- Volkswagen and Ford Motor Co. are sticking with long-planned investments in Russian engine factories even as car sales there head toward a six-year low.
Volkswagen opened a 250 million-euro ($279 million) plant on Friday, with Russian Prime Minister Dmitry Medvedev attending the inaugural ceremony.
The factory near Kaluga, an industrial city southwest of Moscow where Volkswagen already produces vehicles, will have capacity to make 150,000 engines a year for Russian-made VW-brand and Skoda cars, helping reduce prices, Marcus Osegowitsch, head of the carmaker’s Russian unit, said at the event.
The factory was the second to start operating in Russia this week as VW and Ford follow through on promises made in order to secure tax advantages and a foothold in the market.
The U.S. company’s Russian joint venture, Ford Sollers, spent $275 million on a plant in the Tatarstan region that opened on Thursday. Earlier this year, French competitor Renault started building engines in the Samara region.
Russia has required international automakers to build factories in exchange for being allowed to import parts at zero or low tax rates.
Car manufacturers including Volkswagen may seek to change the terms of those agreements, Kommersant newspaper reported earlier this week. The companies want the government to make allowances for fluctuations in the value of the ruble when calculating how much of their production is local, a figure that’s used to define whether the carmakers have met their obligations, a Volkswagen spokesman said.
There are no talks of moving component production out of Russia, the spokesman said. Some 30 percent of VW and Skoda vehicles built in the country will have locally made engines starting next year, Volkswagen said.
Russian cars sales have slumped for seven months straight, dropping 28 percent in July as the economy falls into the first recession since 2009. Sales of new cars and light commercial vehicles may plunge 36 percent this year to 1.55 million units, the lowest since 2009, according to the Association of European Businesses.
“If you had asked me even two to three month ago, I would say that we touched the bottom and the market will start recovering soon,” Osegowitsch said in an interview at the ceremony. “But now the situation looks less optimistic because of the unfavorable situation on the global market.” Volkswagen doesn’t expect demand in Russia to recover in 2016, he said.
Ford aims to spend 60 percent of the cost of producing cars for the Russian market in the country itself by 2020 to qualify for benefits such as lower import duties on car components.
The plant will be the first to produce engines for Ford in Russia.
The new factory has the capacity to produce up to 105,000 engines a year, with the possibility of expansion to up to 200,000, Ford Sollers said in a statement Thursday.
At least 30 percent of Russian-built Ford vehicles, including the Ford Fiesta, Ford Focus, and Ford EcoSport models, will be equipped with locally built engines, the company said without providing a timeframe.
"Our main target in line with our long-term localization strategy was to launch engine production with a significant level of localization ... We are fully committed to this strategy which is key for our business in the current environment," said Adil Shirinov, Ford Sollers' COO.
Ford's sales in Russia fell 52 percent in the first seven months, even though it launched four new models in the country this year. It also took control of the Ford-Sollers venture, which was in the red last year due to the economic slump.
Carmakers with models targeted at middle-class buyers and heavily dependent on imported components have been hit hardest.
Ford rival General Motors said in March it would shut its plant in St Petersburg and wind down sales and production of its Opel brand in Russia as it did not want to make significant investments in a tumbling market.
Reuters contributed to this report.