Volkswagen decided to close production in Nizhny Novgorod

In July, Volkswagen Group Rus will start winding down the contract production of cars in Nizhny Novgorod at the facilities of the GAZ group. A source close to the company told Vedomosti about this. The representative of the German concern speaks only about the closing of the “own office in Nizhny Novgorod” on July 5, given the general high level of uncertainty and the impossibility of predicting the potential resumption of production. He did not answer the question about whether the production of Volkswagen cars on GAZ will continue.

Volkswagen is liquidating a separate division in Nizhny Novgorod, the car assembly project will be closed from July 6, the source of “Vedomosti” claims. The division is an office where, in addition to managers, the quality service, logistics and design engineers work. They will be reduced by agreement of the parties, the interlocutor explained. The number of employees who will be affected by the process of closing the office is approximately 60 people, says a Volkswagen representative. This is exclusively the German concern’s own staff, there is no question of employees of the GAZ group who were engaged in assembling machines on the assembly line, he emphasized.

A representative of the GAZ group told “Vedomosti” that the company will look for alternative loading for its production site, which produced Volkswagen and Skoda cars, and is not going to liquidate it. Now this production is in a state of downtime, workers receive 2/3 of their salary and all social security benefits, he specified. “The main conveyors of the Gorky Automobile Plant for the production of GAZ vehicles continue to work as usual, according to the schedule of a full working week,” added the interlocutor.

Volkswagen has been assembling cars at the site of the GAZ group in Nizhny Novgorod under a contract since 2012. The design capacity of this production is 132,000 cars per year. In addition, since 2007, the German concern has its own plant in Kaluga (capacity – 225,000 cars per year). The company’s engine plant (capacity – 150,000 engines per year) is also located in the Hrabtsevo technology park. Volkswagen Polo, Skoda Rapid and Volkswagen Tiguan are produced in Kaluga. In Nizhny – Skoda Octavia, Karoq and Kodiaq, Volkswagen Taos.

Production of the Skoda Kodiaq will probably be transferred to Kaluga, where the co-platform Volkswagen Tiguan is being assembled, the Vedomosti source said in April. He confirms this information even now, adding that the issue with other models from the Nizhny Novgorod site is “hanging in the air”. Downtime at the Kaluga plant of the German concern may last until the end of 2022, he notes.

In 2021, Volkswagen Group sold 199,200 cars on the Russian market, 170,300 of which were made in Russia: 118,000 in Kaluga and 52,300 in Nizhny Novgorod. The concern’s market share was 11.9%. According to the results of the five months of 2022 (latest available data), sales of the Skoda, Volkswagen and Audi concerns decreased by 67% (13,990 cars), 66% (13,787) and 62% (2,790), respectively, according to data from the Association of European business.

In 2018, the GAZ group fell under the sanctions of the US Treasury due to its affiliation with businessman Oleg Deripaska (also under sanctions). For four years, the US Department of the Treasury’s Foreign Assets Control Office issued licenses to companies that delayed the sanctions’ entry into force. This allowed Volkswagen to continue assembling cars in Nizhny. The last US Treasury license expired on May 25 and was not renewed.

Then Volkswagen admitted that the actual entry into force of sanctions does not allow it to continue operational activities at GAZ after this date. But this site has been idle since March 3, along with Kaluga, due to a shortage of components and failures in logistics after the start of a special military operation in Ukraine. The company did not give any forecasts regarding the resumption of production in Russia, but a source close to the concern told “Vedomosti” that no plans were made public to curtail assembly at any of the sites.

In June, Volkswagen offered its employees in Nizhny Novgorod to voluntarily resign, receiving up to six salaries, Kommersant wrote. It was about 200 employees of the local Volkswagen division. As part of this program, the majority of employees decided to leave the company, notes the representative of the German concern.

For Volkswagen, the site in Kaluga is much more important from the point of view of production, as Nizhny Novgorod has always been an auxiliary facility, says auto expert Vladimir Bespalov. Holding on to him in the conditions when the concern has suspended all activity in Russia is not so expedient, he argues. The issue of maintaining production in Kaluga is “ambiguous” under the current circumstances, but for the time being, assembly there will most likely be in a frozen state, Bespalov believes.

“Vedomosti” sent requests to the Ministry of Industry and Trade of the Russian Federation and the government of the Nizhny Novgorod region.

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