U.S. carmaker Ford's Russian venture, Ford Sollers, opened a $275 million engine plant on Thursday, which will help make its Russian-produced vehicles less dependent on imported components and currency fluctuations.
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 new plant, in the republic of Tatarstan, 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.
At least 30 percent of Russian-built Ford vehicles, including Ford Fiesta, Ford Focus, and Ford EcoSport models, will be equipped with locally built engines, the company said without providing a timeframe. Ford does not currently make any engines in Russia.
"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' Chief Operating Officer.
After years of growth in excess of 10 percent, Russian car sales collapsed in 2014 as the economy shrank and the rouble weakened, due to lower oil prices and Western sanctions over Moscow's role in the Ukraine crisis.
New car sales in Russia are forecast to drop 36 percent this year to 1.55 million, according to the Moscow-based Association of European Businesses (AEB). In January-July, sales fell 35 percent, year-on-year, the AEB said.
Ford's sales in Russia fell 52 percent in January-July, 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.
General Motors Co (GM.N) 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.