General Motors and the Russian government have signed an agreement that will result in a significant ramp-up to the company’s vehicle output in Russia.

Over the next five years, GM says that it will increase the production capacity at its wholly owned plant in St. Petersburg to 230,000 vehicles per year and at its GM-AVTOVAZ joint venture in Togliatti to 120,000 vehicles per year, for a combined annual production capacity of 350,000 vehicles. Current production at the two facilities is about 200,000 vehicles annually.

“GM regards Russia as an important strategic market. This agreement will help us expand our operations,” said Jim Bovenzi, President and Managing Director of GM Russia and CIS. “We look forward to offering our local customers more great products that meet their desires and needs.”

Under the agreement, GM will increase its share of locally sourced components to an average of 60 percent and grow its percentage of vehicles with locally sourced engines and transmissions to 30 percent. GM will also expand its engineering, research and development center in Russia, which will enable it to develop products tailored for the Russian market. In exchange for these significant investments in the domestic economy, the Russian government will provide GM lower customs duties on imported components for eight years.

GM’s facility in St. Petersburg will continue to manufacture Chevrolet and Opel models for the Russian market. GM-AVTOVAZ will concentrate on the production of small SUVs and all-new versions of the Chevrolet NIVA and Lada 4X4.

The production capacity increases will create approximately 1,500 new employment opportunities at GM’s St. Petersburg plant and hundreds of new jobs at its joint venture in Togliatti.

International OEMs with plants in Russia are being gently nudged by the Russian government to invest in more capacity and increase local sourcing. A new framework of rules – ‘Decree 166’ – has been constructed that give foreign investors breaks on tariffs if they invest more in Russia.