GM launches major joint venture to manufacture cars in Russia

<br>TOGLIATTI, Russia (AP) _ General Motors Corp. and Russia's top automaker, Avtovaz, unveiled a plant Monday capable of producing 75,000 sport utility vehicles a year, the largest joint venture yet

Monday, September 23rd 2002, 12:00 am

By: News On 6

TOGLIATTI, Russia (AP) _ General Motors Corp. and Russia's top automaker, Avtovaz, unveiled a plant Monday capable of producing 75,000 sport utility vehicles a year, the largest joint venture yet for Russia's struggling automobile industry.

For General Motors, the $338 million deal represents a bold attempt to carve a greater niche in Russia's burgeoning car market. For Avtovaz, it represents the opportunity to attract 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 facility at the giant Avtovaz plant in Togliatti, about 600 miles southeast of Moscow.

The plant will produce Chevrolet Nivas for sale locally and at GM dealerships overseas, though not in the United States.

Avtovaz will provide the facilities, equipment and know-how, while GM will contribute mostly cash and some equipment. GM and Avtovaz each get a 41.5 percent stake in the joint venture, worth $99.1 million apiece. The European Bank for Reconstruction and Development will own the remaining 17 percent of stock, worth $40 million, and will also provide $100 million in loans.

In line with Russian tradition, an Orthodox Christian priest sprinkled holy water on the production line and chanted prayers before the first Chevrolet Niva rolled off the assembly line Monday.

The project is seen as a major victory for Russia's 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.

``I am very enthusiastic that the world's leading automaker has come here,'' Avtovaz chief Vladimir Kadannikov said.

But Russia's struggling economy, convoluted legislation that provides little protection for investor rights, weak court system and rampant corruption have scared off investors. Until recently, Russian had only a few small-scale projects for the local assembly of foreign-made cars. Some Western automakers have spent years in strenuous but fruitless talks.

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. The least expensive model will cost about $8,000 in Russia, while another version, powered with European engines will cost significantly more.

Many Western automakers have hungrily looked to Russia, one of the few countries in the world with annual car sales exceeding 1 million vehicles.

``We believe Russia is one of the six most promising emerging world markets for auto vehicles,'' Smith said at the opening ceremony.

However, sales are inhibited by the low purchasing power in Russia, where the average monthly wage is about $100.

The Avtovaz plant was built in the late 1960s with Italian equipment and know-how. It is still producing a slightly modified version of the Fiat-124, circa 1966.

The joint venture, which will employ 1,200 people, is set to reach full capacity by 2005. For the first full year of operation, it plans to produce 35,000 vehicles.