The European Bank for Reconstruction
and Development is expected to offer roughly $175 million in support for a $500
million-$600 million car-making venture planned in Russia by domestic producer
AO AvtoVAZ and US auto giant General Motors Corp – one of the EBRD’s largest undertakings
in the ex-USSR.
Some details of the bank’s
involvement remain unfixed, but the EBRD would offer credit and take a 14% stake
in the venture. AvtoVAZ and GM each would hold 43%.
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The EBRD, which is expected
to provide $600 million in financing to Russia this year, is keen to support
the project, though the deal still awaits the US automaker’s approval. Officials
close to the negotiations expect GM to give the green light in October. But
GM vice president David Herman, who has been leading the talks with AvtoVAZ,
declined to comment on any EBRD role and any schedule for approving the venture.
Vladimir Kadannikov, chair
of AvtoVAZ’s board of directors, said: “We have met the EBRD, and we spoke
about a scheme where the bank would provide credit to the joint venture and
take shares in the joint venture.”
If approved, the project
could launch output as early as fourth-quarter 2002 at AvtoVAZ headquarters
in Togliatti, roughly 1,000 kilometers southeast of Moscow. It would aim to
achieve an annual production capacity of 75,000 cars with 1,200 people by 2006,
Herman said.
AvtoVAZ, which began operations
in 1970 by building Fiat-derived models under the brand Lada, is the biggest
carmaker in Eastern Europe with capacity to make 750,000 units a year. An AvtoVAZ
deal would give GM and its affiliates over one third of the annual production
capacity of all light vehicles in the old East bloc (about 4.0 million units),
eclipsing empires there of Daewoo and Volkswagen.
The venture would build
two types of vehicles, likely under the US automaker’s Chevrolet brand: one
based on a mid-sized Astra from GM’s Adam Opel AG; another derived from a new
small sports-utility vehicle from AvtoVAZ, currently made in limited volumes
as Lada Niva 2123.
The EBRD also foresees an
array of opportunity in supporting investment in Russia by dozens of foreign
parts makers to supply AvtoVAZ-GM output. The components producers likely would
include major players like Johnson Controls Inc of the USA, GKN Group of the
UK and Valeo SA of France.
The bank’s enthusiasm for
the AvtoVAZ-GM project comes despite past trouble participating in auto ventures
in Russia. OAO Gorkovsky Avtomobilny Zavod (GAZ) and AO KamAZ, each car-and-truck
makers there, have defaulted on EBRD credits. Meanwhile, ZAO Nizhegorod Motors,
a venture between Fiat SpA and GAZ in which the bank took a 20% stake, has postponed
plans to launch car output in late 1998 to the first half of 2002.
The EBRD declined to comment
on the status of its involvement in Russia’s auto industry, as the projects
are under review. But observers said the bank is drawn to the innovative strategies
of the AvtoVAZ-GM project to extensively use from Russia equipment and technology
as well as labor and material, enabling the venture to start selling the Niva
at $7,500 and the Astra at $10,000. This is crucial to success, as 98 per cent
of demand for new vehicles in Russia is for models costing under $10,000, and
many foreign players plan investments there to make vehicles priced at $12,000-$15,000.
The US automaker learned
this the hard way. In a project launched in late 1996 in Elabuga in the Tartarstan
region of Russia, GM hoped to build 50,000 Chevrolet Blazer off-road vehicles
a year, many priced over $25,000. But output was halted in late 1998 due to
low demand (3,600 units were made over two years), though prices fell to $15,000
for some models.
Author: Ryan James Tutak in Moscow for just-auto
E-Mail: rjt@pronet.hu
Telefon: +36-1 / 266-2693
Telefax: +36-1 / 317-7257
