GM, Autovaz In SUV Joint Venture

Autoparts Report, Oct 3, 2002

In the largest joint venture yet for Russia's struggling automobile industry, General Motors and Russia's top automaker, Avtovaz, unveiled a plant capable of producing 75,000 sport utility vehicles for local and international markets.

For GM the venture in Togliatti gives the company a solid foothold in Russia's growing car market. For Avtovaz, it comes as an embodiment of long-held hope of attracting Western money and capability to breathe fresh life into its aging production facilities.

"We want to see the Togliatti plant produce high-quality vehicles and become as efficient as any GM facility in the world," GM chairman John F. Smith said as he unveiled the new production facility at the giant Avtovaz plant in the city about 600 miles southeast of Moscow.

Under the $338 million deal to manufacture Chevrolet Nivas, Avtovaz provided facilities, equipment and know-how while GM contributed mostly cash and some equipment. GM and Avtovaz each get a 41.5 percent stake in the joint venture, worth $99.1 million apiece, and the European Bank for Reconstruction and Development owns the remaining 17 percent of stock, worth $40 million. The bank is providing $100 million more in loans.

The project is seen as a major victory for Russia's obsolescent auto industry, which has long been clamoring for foreign investment to help modernize its aging equipment and develop new products to replace designs dating back several decades.

Some western automakers have spent years in strenuous but so far fruitless talks for bigger projects. One exception came in July, when Ford Motor Co. launched a $450 million plant in Vsevolozhsk, near St. Petersburg, to produce the Ford Focus for the Russian market. The plant, which has begun limited production, has a capacity of 25,000 cars a year.

In contrast, the new Chevrolet Niva is a Russian-designed product. It will be sold at Avtovaz dealerships in Russia and GM dealerships abroad. There are plans to export the vehicle to Europe, the Middle East, Asia and Latin America. No exports are planned to the United States or Canada.

The least expensive Chevrolet Niva will cost about $8,000 in Russia, while another version, quieter and powered with European engines, will cost significantly more. Engineers from Opel, GM's German subsidiary, have helped Avtovaz refine the initial prototype.