German carmaker Volkswagen is planning a new assembly line at Russia's GAZ in order to boost production in the booming market, its chairman of the board Martin Winterkorn said on Thursday.

Winterkorn, who met with Russian Prime Minister Vladimir Putin, added that the group expects to sell 360,000 cars in Russia by 2017-2018, and plans to expand its own factory in the Kaluga region in the long term.

The development of the Russian market has led to the result that our existing capacity is already not enough, Winterkorn told Putin, who last year visited Volkswagen's factory in Kaluga, which has a capacity to produce 150,000 cars per year.

Russia was well on its way to overtaking Germany as Europe's leading car market before sales collapsed in 2009 due to the economic crisis.

Russian car sales for the first seven months of this year are up 9 percent on 2009 to 963,688, although this is still 45 percent below 2008 levels. The government expects a 15 percent rise for the year as a whole to around 1.7 million.

Volkswagen sold 27,636 cars in January-August of 2010, a 12 percent rise over the similar period of last year. It was not immediately clear what model or models Volkswagen planned to assemble at GAZ, which is part of tycoon Oleg Deripaska's business empire.

GAZ, which manufactures mainly light commercial trucks, was supposed to enter an alliance with Opel following a joint bid for the German car maker by Russia's Sberbank and Canada's Magna International.

The deal, backed by Putin, fell through, leaving the company without a foreign partner. GAZ has recently purchased a production line from Chrysler with capacity of 150,000 cars a year which is currently idle.

GAZ said it is in talks with Volkswagen over the assembly line but did not disclose any details.

(Additional reporting by Gleb Stolyarov; Writing by Gleb Bryanski; Editing by David Holmes)

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