Volkswagen have signed a deal that will see the company build a new 115,000-car construction plant in Russia.

The new plant is the latest sign that the world's vehicle producers are being attracted to the Russian car market, in which consumers are shunning domestic cars for foreign models.

General Motors (GM) is also reportedly nearing a deal to develop operations in Russia.

Volkswagen's chairman Bernd Pischetsrieder signed the agreement with Russian officials that will see his firm build a $510 million car plant in the city of Kaluga, near Moscow.

"The new plant means lower customs duties and more attractive prices for our cars. That is how we can significantly increase our market volumes in Russia and thus raise capacity utilization at the group's component plants," said Mr Pischetsrieder.

He added that the aim was to expand the current demand of 30,000 vehicles a year to 150,000 over the next four or five years.

Volkswagen does not appear to be alone in courting the Russian market. GM plans to use a 170-acre site outside St Petersburg for a new plant, according to some of the Russian media reported by Associated Press.

Ÿ Adfero Ltd