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VW looks to moving production to the Gulf

Volkswagen is considering moving the production of some components to the Gulf state of Abu Dhabi, which the German car company hopes will buy up to 10% of its shares.

The carmaker said moving production of aluminium parts was under discussion because of the rising cost of electricity - a major part of the cost - in Germany.

The feasibility study is still at an early stage but is likely to be seized on by industry lobby groups as the first example of business being driven out of Europe by the cost of new carbon trading rules designed to reduce pollution.

Bernd Pischetsrieder, chairman, says: "Due to the emission trading in Germany, suppliers - energy intensive suppliers - think that sooner or later they have to find another place to manufacture our components."

The company is studying whether aluminium, rubber and plastic polymer parts could be made in Abu Dhabi, an oil-rich emirate where energy is cheap.

VW has teamed up with Abu Dhabi and Olayan, a Saudi Arabian investment company, to expand car leasing by buying Leaseplan from ABN AMRO for €2.13bn (£1.40bn). Abu Dhabi and VW are now in talks about whether VW could pay for its part - and possibly raise extra funds - by selling shares it bought back several years ago to the emirate.

As part of the purchase of Leaseplan, VW and Abu Dhabi agreed to examine whether it was practical to set up production and a leasing operation in Abu Dhabi, and encourage VW sales.

However, Pischetsrieder said a decision on shifting production would be "nothing to do with whether they become a shareholder or not".

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