Nissan opens first car plant in Russia

Foreign automakers have been looking to Russia to compensate for flagging sales in the more saturated West.

Prime Minister Vladimir Putin and Nissan Motor Corp. president Carlos Ghosn presided over the opening Tuesday of the Japanese car maker's first plant in Russia, banking on the revival of the country's car industry despite the global financial crisis. The Russian car market was on track to become Europe's largest before the crisis struck, and foreign automakers had been looking to Russia to compensate for flagging sales in the more saturated West. Those hopes have been dimmed as Russia's economy has been battered by the financial crisis, but Nissan President Carlos Ghosn said Russia remained the Japanese car maker's No. 1 market in Europe and No. 5 in the world. "Our success in Russia will directly depend on the support of the Russian government and people," Ghosn said. Nissan sold 146,000 cars in Russia last year, a 26 percent increase over 2007, he said. The new plant, which cost $200 million, is initially expected to produce 50,000 cars per year. All car sales in Russia rose 26% in 2008 - continuing a trend of several years - but were down 53% in April and 44% in the first four months of the year. The Russian government has offered substantial incentives to foreign producers to set up assembly plants or manufacture auto parts in Russia. Ford, Renault, Scania, Toyota, Volkswagen and GM have all opened plants within the past six years. Putin, who test drove the first Nissan Teana to roll off the production line, said his government "will continue to support any investment, first of all direct investment and especially if it is connected to innovation and new technology." In addition to the Teana sedan, the plant will also produce the Nissan X-Trail compact sport utility vehicle. Russia is eager to reverse a sharp decline in foreign investment, which dropped 43% in the first quarter of this year. Putin also welcomed the 750 jobs created by the new Nissan plant. Nissan expects more than 5,000 additional jobs to be added by suppliers and other partners when the plant begins operating at full capacity, Ghosn said. As a reminder of Russia's rising unemployment, now above 10%, hundreds of people left jobless by factory closures on Tuesday staged a protest that shut down a major highway west of St. Petersburg. Chanting "Work! Work!" the 500 or so protesters blocked traffic in Pikalyovo, a town that straddles the main road between St. Petersburg and the city of Vologda. Most had received no pay since a cement factory in Pikalyovo was closed in February, union official Andrei Petrov said. The plant is owned by Basic Element, the holding company of billionaire Oleg Deripaska. Its closure left 2,500 people out of work - more than a tenth of the town's population. Since then, two more local factories have also either shut down or suspended operations. Meanwhile, Russia's deputy economic development minister said Tuesday the country's economy is on its way to recovery and will pick up in the second half of the year. Andrey Klepach, who came under fierce criticism from the Kremlin last fall for being too pessimistic in his forecasts, said Russia's economic output would rise 4 to 5% in the second half of the year compared to the disastrous first half. Russia's economy shrank 9.8% in the first four months of the year compared with the year-earlier period and most forecasters expect it will shrink 6 to 8% over the entire year. Russia's economy has been under severe pressure since last fall when oil and commodity prices - the backbone of the Russian economy - plummeted last year and foreign credit became largely unavailable for Russian companies. The government has recently announced that it is going to cut budget spending next year, even in priority areas, for the first time in a decade. Russian officials expect the economy to shrink 7-8% this year, but say the recovery may start as soon as this summer. "What is more important, we will see positive developments in the second half," he said, according to Interfax. "We are now somewhere near the bottom of the crisis and we may see some recovery in June or July." Klepach added that gross domestic production may rise 1% in 2010 and 3% in 2011.