Volvo Trucks to open Russian plant amid weak demand

By Anton Doroshev

MOSCOW, Jan 16 (Reuters) - Sweden's Volvo Trucks (VOLVb.ST) is set to open a new factory next week in Russia, even as the country's largest local truckmaker idles its assembly lines for almost a month due to a sharp drop in demand.

Analysts have faith in the project's long-term viability, but said it may run into trouble in the short term.

The launch of the 15,000 vehicle-a-year facility -- in the Kaluga region and which cost 100 million euros ($132.6 million) to build -- is scheduled for Jan. 19.

In recent months, the global financial crisis has hammered Russia's retailers and construction companies, two of the truck market's largest consumers, leaving producers of commercial vehicles unable to turn their stockpiles around.

"Nobody knows how they will survive in a situation where the market is falling," said Vladimir Samoylov, a spokesman for Kamaz, Russia's largest truck maker, in which Germany's Daimler (DAIGn.DE) took a 10 percent stake last month.

"But the crisis will not last forever."

In December, Kamaz halted production at its factories for one month, forecasting a 40 percent decline on the Russian truck market in 2009 and seeking to clear its inventory before producing any more machines.

Samoylov said the underlying strategy of Volvo's move is sound. "You don't have to pay customs duties on automobiles assembled in Russia ... Eventually, they (the Kaluga factory) will start making money."

Ernst & Young analyst Ivan Bonchev said Volvo also has an advantage over Kamaz on the Russian market because most of its customers need trucks for long-distance hauling rather than servicing construction sites.

Volvo's short-term production plans for the Russian market have not been made public. However, a spokesman said the new factory might stay below its maximum capacity for several years.

"We have not said that these figures (15,000 vehicles a year) will be reached in the first years of the plant's existence," said Oleg Vasilchenko, the spokesman.

Bonchev said demand on the Russian truck market is strong enough to absorb about 5,000 Volvo trucks a year.

"Later on, when they begin increasing production, let's hope that the crisis will be behind us." (Writing by Simon Shuster; Editing by Andrew Macdonald)