The leaders of Russia and Germany failed on Tuesday to reach agreement on plans by Volkswagen to build an assembly plant in Russia, Europe’s largest carmaker told Reuters on Tuesday.

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“They did not sign anything, (German Chancellor Gerhard) Schroeder and (Russian President Vladimir) Putin. There is no contract, there is no memorandum of understanding,” VW spokeswoman Christine Kuhlmeyer told the news agency after the leaders met in northern Germany.


She reiterated that Volkswagen was considering assembling cars in Russia from completely-knocked-down kits but added it remained unclear when this might happen.


“We need the possibility to be competitive in that market. If there is no base established to be competitive in that market, it is difficult,” Kuhlmeyer told Reuters.


She reportedly said she did not know why the leaders had failed to clinch a deal – in the past Russian import duties on car parts have posed a stumbling block.

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According to Reuters, Russia’s Vedemosti business newspaper said on Tuesday VW was supposed to invest €30 million in the factory, which was to initially make 40 cars a day.


By the end of 2005 the factory was to assemble VW Bora and Skoda Octavia models and from 2007 add the VW Polo. By 2007 the factory was supposed to add a welding and a painting line and boost capacity to 200 cars a day, the paper said, according to the news agency.


Reuters noted that VW has been in talks with the Russian authorities for years, waiting for a cut in import duties for automobile parts. In 2003 VW’s sales in Russia fell 7%, while sales of other foreign car makers rose on the back of economic growth, it said, adding that sales rose 13.5% in the first half of 2004 to 3,983 cars.


The attention on Russian reflects VW’s drive to diversify from reliance on saturated western car markets and as a China boom slows, Reuters added.