GENERAL MOTORS signs joint venture to manufacture 75,000 sports utility vehicles in Russia

<br>MOSCOW (AP) _ General Motors Corp. signed an agreement Wednesday with Russia's largest automaker Avtovaz and the European Bank for Reconstruction and Development to create a joint venture that

Wednesday, June 27th 2001, 12:00 am

By: News On 6

MOSCOW (AP) _ General Motors Corp. signed an agreement Wednesday with Russia's largest automaker Avtovaz and the European Bank for Reconstruction and Development to create a joint venture that will produce 75,000 sport utility vehicles a year.

The $340 million deal is one of the largest foreign investment projects in Russia, and by far the biggest joint venture in Russia's car industry, which is struggling to modernize its aging equipment and develop new products. Until now, Russia has only had several small-scale projects for the local assembly of foreign-made cars.

In contrast, the new vehicle, which will be sold under the trademark Chevy Niva, is a 100 percent Russian product which will be sold at Avtovaz's dealerships in Russia and GM's dealerships abroad.

``By combining the resources of Avtovaz and General Motors, we create exciting possibilities for the future,'' GM president and chief executive Rick Wagoner said at a news conference.

Under the agreement, GM and Avtovaz each hold a 41.5 percent stake in the joint venture, and the remaining 17 percent is owned by EBRD, which is contributing $100 million in loans and invests another $40 million in equity.

Avtovaz will provide its $100 million share of investment in the form of production facilities, equipment and know-how, while GM brings $100 million in cash.

Before signing the agreement Wagoner and other GM and Avtovaz officials met with Russian Prime Minister Mikhail Kasyanov on Wednesday and received his blessing for the project.

The joint venture, which will employ 1,200 people, is expected to start production at a new section of the Avtovaz plant in Togliatti in September 2002, reach the full capacity by 2003 and turn its first profit in 2006. Togliatti is about 600 miles southeast of Moscow.

There are plans to export up to 40,000 vehicles to Western and Central Europe, Mexico and, possibly, other countries. The rest will be marketed in Russia, and no exports are planned to the United States or Canada.

The vehicle will be priced at around $8,000 in Russia, while an export version, powered with European engines, will cost significantly more. It already exists in prototypes, but will be refined by Avtovaz engineers with participation of Adam Opel, the GM German subsidiary.

Russia is one of the few countries of the world with annual car sales exceeding 1 million vehicles, but the bulk of them are Russian-made sedans priced at around $3,000 and their design dates back to the 1960s. Last year, only 48,000 new cars sold in Russia were imported.

The giant Avtovaz plant was built in the 1960s with Italian equipment and technology and is still producing a slightly-changed version of Fiat-124, circa 1966.

Despite the low buying power of most of the Russian populace, many Western automakers see great potential in the Russian market.

``Consider that for every 10,000 inhabitants, Russian now produces about 135 cars,'' Wagoner said. ``That makes Russia one of the greatest potential automotive growth markets in the world.''

David Herman, GM vice president for Russia and the Commonwealth of Independent States, said the joint venture will be able to develop other projects in the future. ``As Russian acquisition power grows, we intend to add to the Chevy brand,'' he said.

The EBRD and the Russian government hope the project will also help draw the much-needed investment to the beleaguered Russian auto parts industry, which desperately needs improvement to modern quality standards.

``We would in principle be ready to provide the financing to support such (component making) projects,'' EBRD vice president Charles Frank said, adding the bank may earmark up to $200 million in total for investment in the Russian autoparts industry.

The joint venture between GM and Avtovaz has been under discussion since 1998, with GM has initially planned to assembly its Opel Astra cars in Russia. That project fell through largely because GM has been unable to use enough local components to lower the vehicle's price down to the level at which mass demand can exist in a country where the current average monthly wage is around $100.