VW's Friend in the Volga

  • Why it matters

    Why it matters

    In Russia, a country with little environmental awareness, the VW-GAZ partnership seems like a match made in heaven. But with the Russian passenger vehicle market’s recent crunch, the move presents many risks.

  • Facts


    • VW and GAZ have been working together for six years.
    • VW will provide TDI diesel engines for GAZ vehicles.
    • GAZ exports to former Soviet countries, China, Africa and other parts of Asia.
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Volkswagen startet Vollproduktion in Russland
Reflecting high hopes of the Russian market. Source: DPA Picture alliance

Amid VW’s Dieselgate scandal, Russia’s strained relations with Europe and the US and the auto industry’s search to green itself, Volkswagen has deepened its ties to a Russian automaker to make diesels.

VW, battling the ongoing Dieselgate crisis, signed a letter of intent to supply diesel engines to GAZ, a Russian carmaker based in Nizhniy Novgorod in the Volga District.

It is a bet against the dim outlook on the Russian car market which has contracted amid a decline in real income. In 2016 the country had a poor year as sales of passenger vehicles were down 11 percent and carmakers such as GM have withdrawn. VW, though, is the leading foreign carmaker in Russia and is positioning itself for a rebound. Luxury carmaker Mercedes Benz is also investing in the country.

VW and GAZ have been working together for six years as GAZ, owned by Russian Machines, makes Skodas and Volkswagens and under the agreement will assemble other models too, through 2025. VW, meanwhile, will supply diesel engines for GAZ’s Gazelle Next brand.

In his Moscow office, Siegfried Wolf, chairman of the board of GAZ’s parent company, underlined the potential in his country. “The Russian car market could tolerate three to four times the number of vehicles,” he told Handelsblatt.

“We’re lying to ourselves with the entire carbon footprint offset. We all know that mobility without diesel is impossible.”

Siegfried Wolf, Chairman of Russian Machines

GAZ wants to grow but because of the realities of the Russian driving experience, it’s not focusing on Europe. “Because of the climate and bad roads in Russia, we offer a 150,000-kilometer guarantee. Our cars are robust and easy to repair,” he said. GAZ, launched as NAZ in 1932 in a collaboration between Ford and the Soviet Union, is now Russia’s leading maker of heavy and commercial vehicles. It is oriented towards the former Soviet republics, North Africa, Thailand and South America where Mr. Wolf said demand is huge partly “because the international car industry is unable to build a low-cost commercial vehicle.”

GAZ will continue to focus on these robust vehicles and Mr. Wolf was skeptical about e-car initiatives. “We’re lying to ourselves with the entire carbon footprint offset. We all know that mobility without diesel is impossible,” he said, adding that the CO2 emissions of an electric vehicle are higher than a normal vehicle if you include battery production. He predicted it will take a long time before e-vehicles are commonplace on the roads, partly because of their reliance on government subsidies and as batteries remain too expensive, too heavy and have too limited a range. For now, in his view, China is the only market in a good position to ramp up the production and use of electric cars. Russian drivers, however, likely won’t jump on that bandwagon, and prefer natural gas, he said, which emits two-thirds less emissions.

Despite the sales slump and new competitors poised to enter the market, GAZ’s van and pickup truck business grew against the trend by 9 percent, though still has its share of problems. There’s more potential, Mr. Wolf said. Russia has a great need for commercial vehicles and public transport as its bus and truck fleets are some of the oldest in the world. Another sweetener: the government’s cash-for-clunkers programs and subsidies for urban transport.


André Ballin writes for Handelsblatt from Moscow, Russia. To contact the author:

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