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On June 5, South Korean automaker Hyundai will hold a groundbreaking
On June 5, South Korean automaker Hyundai will hold a groundbreaking ceremony for a new plant in St. Petersburg.

Beginning in 2011, the company plans to assemble an absolutely new budget model there. Hyundai's logic is easy to understand: the Russian car market is growing rapidly, and its budget car segment is the most promising.

The new plant will be built on a 185 hectare site in the Kamenka industrial zone in northern St. Petersburg. A total of $400 million will be invested in the construction, and the plant will be able to produce 100,000 cars a year.

Spokespeople for the South Korean company said the firm will manufacture a new Class C budget sedan (Elantra) based on the Kia C'eed/Hyundai i30 platform. The model is targeted at fast-developing markets - Russia, China and South Korea. Production will begin in China and South Korea in 2010, and then, in 2011, in Russia.

The Russian auto market is growing at a terrific pace. While in 2006, about 2 million cars were sold in Russia, in 2007 the figure was already 2.8 million. Traditional Russian models accounted for around one-quarter (27%) of these - 765,000 vehicles (the overwhelming majority came from AvtoVAZ, the maker of Lada cars). Sales of foreign brands produced in Russia totaled 440,000 (16%), and imports of new cars, 1,205,000 (43%). Used cars accounted for a substantial segment (14%) of the Russian auto market, almost 400,000 units.

By the time Hyundai opens its operation in St. Petersburg in 2011, Russia's car market is forecast to reach 4.5 million vehicles and could become Europe's largest.

This remarkable growth is mostly fuelled by steadily growing incomes and readily available credit for car purchases. The speed with which Russians are snapping up vehicles is due to the lack of four-wheeled friends before - most of them are buying a car for the first time in their life.

Hyundai's choice of a budget car for Russia is apt: its price range, $8,000 to $12,000, is the most appealing. The success of Renault in Russia is due above all to the company picking its Logan budget model for its Moscow Avtoframos plant (founded in 1998). The lowest-cost Logan now selling in Russia is priced at $11,300, and Renault intends to increase its Moscow output from the current 80,000 units to 160,000 units a year.

Logan sales have given such a morale boost to Renault that in February 2008 the French company, defying many skeptics, forked over $1 billion to buy a blocking stake in Russia's major automaker, AvtoVAZ. This made Renault a strategic partner of its former rival and leader in the budget car market in Russia.

So Hyundai is in for some serious competition. However, it is ready to take on the Renault-AvtoVAZ alliance and has announced that its product will compete with the Renault Logan. In addition, the South Korean firm, which also assembles older models at the Taganrog car plant in the Rostov Region, will face competition from other international companies with plans to launch budget models in Russia.

Practically every major car company has facilities in Russia, either as independent or joint assembly projects. The Russian authorities have made up their minds to promote Russian car-making with help from foreign giants.

This strategy got the final approval at a meeting in Yelabuga on May 27, attended by Prime Minister Vladimir Putin. In his opinion, the best solution would be to attract strategic foreign investors into the Russian auto industry and allow them to set up industrial assembly centers in Russia. Such a model is the best way to attract high technologies and large-scale investments, not only for car plants, but also to sectors producing raw materials and components.

He said 80% of cars sold in Russia should also be produced there. All kinds of incentives, including lower duties and tariffs, should be employed to promote industrial assembly in the country, he said.

There are currently 23 such projects in Russia. The Economic Development Ministry is expected to sign one more agreement on industrial assembly this week with Magna, a Canadian firm. The plant that will be built in the Nizhny Novgorod Region will have a capacity of 100,000 to 150,000 cars a year, which could be doubled. It will mostly produce Chrysler models.

Foreign companies have found it profitable to produce cars in Russia. Hyundai plans to sell its cars assembled in St. Petersburg not only in Russia but also in Western Europe.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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