Volkswagen Plans to Invest $2.8 Billion in E. Germany

Volkswagen AG plans to propel auto production in economically ailing eastern Germany with a $2.8-billion investment, the largest injection of private capital in what used to be East Germany, company officials said.

Most of the investment will be used for the completion of a plant at Mosel near the southeastern town of Chemnitz, VW Chairman Carl Hahn said.

An agreement was signed late Thursday by Hahn and officials of the former East German auto cooperative IFA Pkw AG. The deal was also signed by the trust fund administration supervising the privatization of about 8,000 former state-owned East German firms.

The investment also is to be used to restructure IFA subsidiaries and renew production lines.

Hahn said the subsidiary at Mosel will start production by 1994, eventually increasing annual output to 250,000 Golf model cars.

He said Volkswagen, the second-largest European auto maker after the Italian giant Fiat, plans to create a total of 8,000 new jobs in production and 6,500 more in the service sector.

Volkswagen was one of the first West German companies to invest in East Germany after the ouster of the hard-line Communist leadership last fall, while other firms hesitated to risk their money before German unification Oct. 3.

The government recently created financial incentives for companies to enter joint ventures, buy firms or seek partners in the new part of the Federal Republic to speed up economic recovery.

For example, Volkswagen, with its $2.8-billion investment, qualifies for sizable government subsidies.