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GM Rolls Out Joint Venture With Russia

The World

Manufacturing: Factory to produce low-cost SUV opens two months after Ford starts up plant.

September 24, 2002|JOHN DANISZEWSKI | TIMES STAFF WRITER

MOSCOW — Look under the hood of a Russian-made car, and increasingly you'll find American technology. General Motors Corp. on Monday became the second U.S. car maker in two months to launch production in Russia after a big investment in the country's automotive industry.

GM Chairman John F. Smith Jr. was on hand in the southern city of Togliatti to inaugurate the $340-million GM-Avtovaz joint venture to produce a new sport utility vehicle known as the Chevrolet Niva.

The $8,000 cost of the least expensive model is expected to be lower than that of comparable four-wheel-drive vehicles. That, together with the Chevy name, fueled optimism at the joint venture that the Chevy Niva will be a success among buyers looking for a tough car to negotiate Russia's rough, pothole-ridden roads.

GM and Avtovaz built a factory from scratch capable of producing 75,000 Nivas a year by 2005. At first, it is to serve only the Russian market, but plans call for the vehicle to be sold in Europe, the Middle East, Asia and Latin America.

GM put in 41.5% of the joint venture, or about $141 million. The Russian partner put in another 41.5%, while 17% is held by the European Bank for Reconstruction and Development.

The Nivas now rolling off the assembly line follow Ford Motor Co.'s opening near St. Petersburg in July of its own fully owned auto plant, which is making Ford Focus sedans and hatchbacks to be sold in Russia for about $11,000.

Smith said at the ceremony that the GM investment "reflects the importance we place on being present in the Russian market--utilizing local expertise and resources to tap the vast potential of this important growth market."

Management of the joint venture said it will help create 3,200 jobs in the Samara region of Russia--at the new plant, in contracted services and among suppliers.

Yevgeny Gavrilenkov, chief economist of the investment bankers Troika Dialog, said the venture represents one of the largest foreign investments so far in Russia's manufacturing sector and is important because it might pave the way for others from the West.

"This deal is very good for Avtovaz because it will provide a badly needed push and incentive to improve the general quality level of its production. Any contacts with foreign producers, as well as competition with them, are very helpful for Russian auto producers," Gavrilenkov said.

The recent injection of Western car-making technology, he said, is the first in the country since the Italian auto maker Fiat helped modernize the Soviet industry in the late 1960s and early 1970s.

But Gavrilenkov said the deal could be seen as somewhat risky for GM because Avtovaz "is not, by far, the most transparent company in Russia." He noted that the company, which also makes the popular, low-priced Zhiguli sedan, has been dogged by rumors and allegations of corruption for a long time.

Togliatti has been the scene of numerous mob-related killings, including the slaying this year of a journalist investigating corruption in the municipal government.

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