KALUGA, Russia – Auto executives celebrate as the first of four new models roll off a state-of-the-art assembly line at a 350-acre (145-ha) plant here in western Russia.

PSA Peugeot Citroen’s Russian joint venture with Mitsubishi, PCMA Rus, has pressed the button to start full-scale production that eventually will deliver an additional 125,000 vehicles a year from the facility for the Russian market.

The latest in an ongoing expansion of Russia’s auto sector, this bright, clean, airy and surprisingly quiet vehicle factory is surrounded by fields and forests.

Serial production using semi-knocked-down kits launched in 2010 with the Peugeot 308 and Citroen C4 hatchbacks, as well as the Peugeot 4007, Citroen C-Crosser and Mitsubishi XL cross/utility vehicles. The factory assembled 43,263 units last year.

But this day marks a new chapter as the Peugeot 408 sedan becomes the first vehicle to be built at the plant from a complete-knocked-down kit. The car is more sophisticated as well, with enhanced suspension, improved weatherproofing, increased ground clearance and under-engine protection.

It will be followed by CKD assembly of the Mitsubishi Outlander SUV in November and Citroen C4 sedans in early 2013.

Added to the annual 165,000-unit output from Volkswagen Group, already established on another specially prepared greenfield industrial site located on the other side of Kaluga, PCMA’s eventual output would bring annual car production in the city to more than 300,000 units.

For a special economic zone established just six years ago to attract foreign and Russian investment to a region that had plummeted into serious depression after the collapse of the Soviet Union two decades ago, that’s a headline-grabbing figure.

But Kaluga’s success in creating the right conditions, including RR165 billion ($5 billion) in infrastructure investment, to pull in top international auto makers and other specialist firms is not simply about building industrial parks with roads, rail, gas, electricity, water and other services already in place.

Strategically situated three hours southwest of Moscow in an area of vast farmlands and pine forests rich in history – Napoleon’s army battled in the region and 70 years ago it was under Nazi occupation – Kaluga is situated close to Russia’s major urban markets.

Kaluga Gov. Anatoly Artamonov is well-connected with the Kremlin and has used his powers to offer local tax breaks to lure foreign auto makers. He and local investors also have exploited a federal decree that has removed import duties on auto parts until 2018.

PSA and Mitsubishi see Kaluga as their doorway to a fast-expanding Russian market, where the local skilled labor offers them the opportunity to design their own workforce through training programs that are likely to go national.

At a time when looming Russian entry into the World Trade Organization could cut import tariffs and open up the market to low-cost foreign cars, taking the lead on competitors by becoming part of the local industry is seen as a key strategic aim.

Jean-Pascal Viatte, PCMA’s chief financial officer, says the 200 or so French employees among the current workforce of 1,700 (due to rise to 2,500 by the end of 2013),gradually will be replaced by locals as the new production lines come up to speed.

The plant’s SKD soft launch started out with a heavy reliance on foreign specialists. But that has swiftly changed as local workers from Kaluga’s still-functioning military-industrial plants have undergone automotive training programs.

“As Europe’s seventh-largest car maker, we have a strategic interest in being in Russia,” says Viatte, who lives in Kaluga with his wife and three children. “We have projects in China and Latin America, too, and making cars in a growing market like Russia makes sense.

“Kaluga was an obvious choice. It is close to Moscow, (while) the major car markets in Russia are all west of the Urals. There is a good labor pool here and finding skilled workers is not a problem.”

Another plus is that Artamonov and his administration are accessible to foreign investors, not necessarily a given in Russia. It may have become something of a standing joke but the governor readily gives out his private cell-phone number, and top managers at PCMA and other large factories are not afraid to use it, Viatte says.

Further evidence of the city’s willingness to work with auto makers to overcome logistical problems inherent in constructing major manufacturing operations is evident at the Auto Industry Training Centre in Kaluga.

Set up with RR823 million ($25 million) in direct investment from the Kaluga region and in-kind donations of cars, equipment and intellectual property that training center chief Oleg Uklechov reckons to be roughly equal in value, the school is setting new standards in auto-industry training.

“We currently have 200 students, more than a third of them women, and the opportunities to train with state-of-the-art equipment on modern foreign car makes is a major motivational factor for students,” he says.

VW works with the center and also runs its own 22-month training course at its plant that President Vladimir Putin opened in October 2009, when he was prime minister.

The German auto maker sees training as the key to future productivity and profitability of a factory that works 24/7 employing 6,000 workers on three daily shifts.

The factory makes the VW Tiguan cross/utility vehicle and Polo sedan and Skoda Fabia and Octavia. It also works closely with Spanish/Russian-owned adjacent steel-parts manufacturer Gestamp Severstal Kaluga.

Czech-born Jan Jirasko, VW’s training chief, says representatives of the plant and training center have talked with Russia’s auto makers association and the country’s education ministry to devise new training standards.

“Russian auto industry training standards are not yet fully harmonized with Europe’s,” he says.  “But VW is participating in preparing new vocational education standards with the aim of allowing students to achieve three qualifications recognized throughout Russia, by VW and also the German trade organization AHK.”