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Business

Moscow to aid carmakers as VW cuts Russia staff

Russia has announced subsidies to its ailing auto industry, which has been hit by weak demand due to a currency crisis and soaring prices. The news came as Volkswagen said it would cut back its operations in Russia.

Russian Prime Minister Dmitry Medvedev on Monday announced a plan to shore up the country's struggling automobile industry, saying Moscow would provide 25 billion rubles (390 million euros, $425 million) in state subsidies.

The funding was intended to cut credit costs for potential buyers and to boost purchases of new vehicles by government institutions, Medvedev said.

"If there are no support measures taken the market will fall by 50 percent," Russian car industry minister Denis Manturov warned.

Auto sales already fell 40 percent in February year-on-year, state statistics office figures revealed. It was the latest dramatic slump due to a weakening national currency and soaring inflation that has forced the Russian central bank to raise interest rates to about 15 percent, raising the cost of car financing.

Passenger car production in Russia fell 17 percent in February as the sliding ruble drove up the cost of imported components, cutting into margins.

Foreign carmakers in a fix

The announcement of the government's intervention came as German carmaker Volkswagen (VW) said it would cut around 150 temporary staff and reduce the number of shifts at its Kaluga plant in western Russia.

"In the first months of 2015, the Russian automotive market continued to feel the effects of a weak economy, significant price rises and high interest rates. We do not expect to see a change in these factors within the next months," the German carmaker said in a statement.

In emailed comments VW spokeswoman for Russia, Lilia Leonova, said that the company was offering "balanced compensation packages to those of its staff ready to leave the company by mutual agreement."

The cuts follow a decision by US auto giant General Motors (GM) last week to mothball its Opel factory in St. Petersburg and withdraw the Germany-based brand from the Russian market.

uhe/sgb (dpa, Reuters, AFP)

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