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Volkswagen Introduces New Russian Budget Car

A worker at Volkswagen's Kaluga plant drilling parts on a car. S. Porter

Volkswagen said Wednesday that it would start taking orders this week for a new budget car designed exclusively for the Russian market.

The car, based on the German carmaker's Polo model, will be produced in Volkswagen's Kaluga factory and its retail price will start at 399,000 rubles ($12,500), Volkswagen board member Ulrich Hackenberg said at a news conference, Interfax reported.

To successfully navigate Russia's famously potholed roads, the new car will be equipped with a chassis with a higher clearance, said Dmitry Fyodorov, deputy editor of trade magazine Za Rulyom.

The vehicle will be equipped with a 1.6-liter engine, producing 105 horsepower, and will be the only budget car in Russia featuring a six-speed transmission.

But the car's main advantage on the Russian market will be its price, making it eligible for a government program granting subsidized loans to customers purchasing cars for less than 600,000 rubles ($19,200), which has been in effect since last summer.

The automobile will also be eligible for the cash-for-clunkers program, which offers a 50,000 ruble rebate on selected models produced in Russia for consumers who trade in cars that are at least 10 years old.

Volkswagen hopes that the model will make for some stiff competition for other Russian-produced budget cars, including the Chevrolet Aveo, Renault Logan and Ford Focus. The company is even hoping that the bigger engine and European look and feel will allow Volkswagen to compete for customers with the Kalina, which starts at 250,000 rubles.

Volkswagen plans to sell 10,000 automobiles this year and 30,000 next year, Volkswagen's Russia director Dietmar Korzekwa told reporters Wednesday.

So far, the carmaker's factory in Kaluga has been used to produce Volkswagen Tiguans and Skoda Octavias, which are assembled from complete knockdown kits.

Car sales began to recover in April after the market sharply contracted throughout 2009. Light vehicle sales grew 20 percent year on year, according to data from the Association of European Businesses, the first increase since October 2008.

With the car market improving and summer approaching, Volkswagen appears to have picked a good time to enter the market.

"This spring excitement on the market, when consumers have recovered from lengthy winter holidays but have not yet spent any money on their summer vacation, is generally considered the most favorable time to invest in a car," Fyodorov said.

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