PARIS -- French Renault said on Wednesday it will make the largest investment in Russia by a foreign carmaker, joining the growing list of corporations looking to eastern Europe for growth and cheaper labor.
The plan to spend 230 million euros building a new model follows on the heels of BP's announcement that it is to pay $6.75 billion for half the country's third biggest oil firm.
"The investment will be for the production of a car called the X90, which is in the process of development and will be on the market in 2004," Renault chairman, Louis Schweitzer said at a press conference in Moscow with the city's mayor, Yuri Luzhkov.
The X90, a family saloon, will be built at the factory of Renault's local unit Avtoframos, which is 62 percent owned by Renault and 38 percent by the Moscow City Government.
Annual production should reach 60,000 vehicles after two or three years and the plant will employ up to 2,000 people.
"We eventually want annual production to reach 120,000," said Luzhkov.
Renault currently assembles the Symbol, a booted variant of its top-selling Clio small car, at the Avtoframos plant at a rate of just 10 cars a day.
Last year it sold around 8,000 cars in Russia and it is aiming to increase that to 11,000 this year.
It hopes to ramp up sales including imports and the X90 to 100,000 cars a year in the medium term.
Schweitzer said earlier this month that Renault planned to build more cars in Russia to cash in on an "auto epidemic" there and offset sinking demand in western Europe.
Russian bought 1.5 million cars in 2002, with 900,000 of those also produced there, according to Renault, adding the market was growing by around 10 percent per year.
Renault, Europe's fourth-biggest carmaker by sales, said the X90 was being developed in France and would be based on an existing platform shared by Renault and its Japanese partner Nissan, and used to make its top-selling Clio model.
Renault said the X90 would be aimed at "countries where infrastructures still vary in quality and climatic conditions are often severe", adding it would be competitively priced.
The car would be the first model in a wider range of vehicles aimed at these countries. It would first be produced at the Renault's Dacia plant in Romania at the end of 2004 before production gets going in Russia in 2005.
Renault has been mulling building cars in significant numbers in Moscow since the late 1980s. It scrapped an attempt by Avtoframos to assemble the popular Megane after the 1998 Russian economic crisis led to soaring duties on the assembly kits imported by Renault.
Its decision to ramp up investment comes as carmakers facing saturated markets in western Europe move eastwards to grab a share of booming central and eastern European markets and to take advantage of cheaper labor.
French rival PSA Peugeot Citroen last month announced it was investing 700 million euros to build a plant in Slovakia that would produce 300,000 cars a year from 2006, aiming to bring the group's manufacturing base closer to key target markets.
Industry experts believe car sales will double within the next five years in central and eastern Europe, and Renault has already seized 18 percent of the market.
Ford Motor Co. kicked off production of its Focus model at a new $150 million plant outside St Petersburg last July and General Motors began to make an off-road vehicle with Russia's AvtoVAZ two months later.
Germany's Volkswagen has said it is carefully investigating the Russian market.