Venture Industries Inc, a US auto components and engineering specialist, is coordinating a $250m plan to build 150,000 cars and 300,000 engines a year in Russia with output to start in 2004, the company has told just-auto.com.

The innovative project would make budget family vehicles (designed by Venture) and motors (licensed by Orbital Engine Corp Ltd of Perth, Australia) in Moscow at OAMO ZiL (Zavod imeni Likhachova or Factory named after Likhachov). ZiL, mainly a producer of trucks and military vehicles, is known best for limousines handcrafted for Russian and Soviet leaders.

ZiL limousine

Following a memorandum of understanding for the deal inked on 3 June 2000, Venture founder and president Larry Winget recently signed contracts with ZiL general director Valery Nosov and Moscow mayor Yuri Luzhkov, the US company said. (The city owns a controlling stake in ZiL.)

Daunting mission

Neither Venture nor ZiL mass-produce passenger vehicles, and none of the numerous plans to build high volumes of foreign models in Russia have materialised, since the USSR dissolved in 1991. Russia has been a magnet for enormous international manufacturing projects (perhaps inspired by the country’s 150m people and geographic vastness), but these initiatives often have proven infeasible, born of over-optimistic goals and underestimations of economic and political problems there… However, the US company, emboldened by its ace team of industrial pioneers from Russia, believes it has a strategy to make cars that appeal to needs, tastes and wallets of motorists in the former Soviet Union.

“International manufacturers have been trying to make cars that are too complicated and expensive for Russia,” said Eugene Pruss, Venture vice president of international development. He spoke to just-auto.com at AUTOCEE2001, a conference on the auto business in Eastern Europe in Warsaw (23-26 January 2001).

[Since an economic crisis in Russia in August 1998, roughly 85% of new cars sold there have been models priced below $5,000, and global players like Fiat SpA and Ford Motor Co have hesitated to initiate production there, afraid they cannot turn out vehicles cheaply enough to lure customers… At a factory 30km outside St Petersburg in Vsevolozhsk, Ford had scheduled to launch output in mid-2001 of its medium-sized Focus for sale at $13,000-$15,000. But it is struggling to cut the floor price target to $11,000 by localising parts, and the start of operations has been delayed – possibly to mid-2002… In a venture with AO AvtoVAZ of Russia, General Motors Corp suspended plans to build a version of mid-sized Astra from its German subsidiary Adam Opel AG, even though the price was reduced to $10,000. Instead, the project will make an upgrade of Lada Niva 2123, a small sport-utility vehicle with four-wheel drive, created by AvtoVAZ, expected to don GM’s badge Chevrolet with a base cost of $7,500.]

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

Learn more about Strategic Intelligence

“Components must be localised for foreign vehicles to be affordable, and Russia lacks equipment and technology to produce many of the parts,” Pruss said. “Suppliers there cannot afford to modernise, and big capital outlays to support these models would be hard to justify anyway: output of the cars is likely to remain too low to recover the investment… Global suppliers may be able to afford opening plants in Russia, but they generally find the prospects uneconomical and the risks unacceptable.”

Eugene Pruss Venture vice president

Venture car

Venture, seasoned in dealings with automakers and suppliers in Russia, conceived its project with ZiL by carefully evaluating possibilities for making a modern vehicle completely in Russia, he said.

Simply irresistible?

“Our approach is radically different,” said Pruss, born in St Petersburg, now resident in Troy, an affluent suburb of Detroit, Michigan, USA. “We are not trying futilely to force a sophisticated vehicle into production in a country not ready to build it or buy it. Rather, we have developed a car mindful of local-industry limitations and local-market purchasing power… Russia already has the essentials to roll out good vehicles – an abundance of brilliant engineers and skilled workers plus natural resources and raw materials… The key is to make models simple enough for Russian suppliers to support, simple enough for Russian customers to buy and maintain… Simple is not bad. We will offer a new vehicle with an attractive design, excellent construction and reliable performance… Most Russians are not looking for the latest in gadgetry and ornamentation to satisfy their transport needs. But they want something better than traditional vehicles from domestic manufacturers. We will offer a happy medium.”

Venture car

The car, a front-wheel-drive sedan expected to cost $3,600-$4,400, would be 4160mm long (2410mm wheelbase), 1640mm wide and 1400mm high, Pruss said. Initially, it would be built only with four doors, but other body types could follow. (The first generation of the vehicle would be steel-bodied, but future editions may boast plastic skin.)… Luzhkov has kept a prototype, and ZiL may display examples of the car at Moscow motor show (23-29 August 2001).

The two-cycle engine, a lightweight derivative of Orbital powerplant Genesis, is a 1.2-litre three-cylinder petrol with direct fuel injection, capable of 75hp-80hp, said Ken Johnsen, Orbital executive director for business development. It can propel the car from 0kph to 100kph in 11.5 seconds, while consuming under 4.7 litres of gas per 100km on highway, Pruss said.

“The motor is clean, efficient and quiet,” Pruss said. “And it is easy to service.”

The engine is certified to Euro II regulations (the standard now governing exhaust emissions in Russia), and an upgraded version has passed independent tests for Euro III (the standard likely to be in effect, when the project with ZiL is launched), Johnsen said.

Orbital engine

(Several transmissions for the car are under consideration, Pruss said.)

Conceived in the late 1980s, the technology of Orbital engines has enjoyed success in boats, jet skis and motorcycles. It has yet to find commercial use in passenger vehicles, though several automakers (including Ford and Volkswagen AG) considered fitting the two-stroke powerplant in small cars in the early 1990s.

“When we unveiled the engine, automakers were interested, but they were nervous about the shift in technology embodied in our product,” said David Shawcross, commercial engineering manager at Orbital’s automotive division for two-cycle motors.

“Now, though, car producers are keen to use direct-injection four-stroke engines, so our motors face fewer hurdles for acceptance,” Shawcross said. “Some companies are concerned two-stroke engines are less durable than four-stroke engines, but we have conducted extensive tests disproving this… Moreover, compared with four-strokes, two-strokes can be 30% cheaper to manufacture, and they can involve 40% fewer parts. That means our products are simpler to build – and simpler to maintain. This is ideal for emerging markets like Russia with limited resources to introduce modern technology. An industrial conglomerate in Indonesia will start building our engines for its range of vehicles within two years, and we are in talks with potential partners in China.”

Global support

Typical of huge manufacturers in Russia that weathered over 70 years of Communism, ZiL lacks entrepreneurial and industrial leadership, but it would build the cars and engines with professional support from Venture.

The project would have roughly 2,000 workers at capacity, supervised by a team of 150-200 managers and technicians, largely assembled by Venture from its 13,000 employees in 16 countries, including Russia plus Australia, Brazil, Canada, China, Czech Republic, France, Germany, Hungary, India, Mexico, South Africa, Spain, Thailand, UK and USA. (Venture has a design and engineering centre in Moscow with 50 people, and it produces raw material for plastic parts in Kazan, capital of Tatarstan, one of 21 autonomous republics in Russia.)

“We are not a carmaker,” Pruss said. “But we possess a rich pool of talent, including first-rate engineers that have spent many years with automakers around the world. We can bring together the expertise to make this vehicle, and we already have excellent resources in Russia… As an integrator of auto components, we can establish facilities in Russia to supply ZiL with a variety of systems, including door panels, fuel tanks, instrument panels and wipers… Finally, we will encourage parts producers to locate in Russia to support ZiL, and these suppliers can work with others projects there, like those of Ford and GM. This can be a big boost to foreign players trying to localise their models.”

Venture would help with the business strategy, but Moscow and ZiL would organise the finance. Attractive loans may prove hard to secure in a country still overcoming an economic crisis from 1998, but banks and industrial groups in Russia already have been identified to back the project, though no details about creditors have been disclosed. (Support from the city’s mayor is expected to catalyse the deal, though undertakings affiliated closely with politicians in Russia can come to depend too heavily on the fate of the public figures.)

On the line

Venture’s car would be badged ZiL, though no model name has been decided. Output would occur on an assembly line now making Bychok, ZiL’s light-commercial vehicle. (Only 12,299 Bychok were built in 2000, but annual capacity is over 200,000, Pruss said. ZiL, a maker of household refrigerators too, focused on heavy trucks under Communism with production peaking above 230,000 in 1988.)

“The line for Bychok is essentially new because it has been hardly used,” Pruss said. “The technology is highly advanced in all stages – stamping, welding, painting and assembling. And it can be programmed to produce our cars alternately with ZiL’s commercial vehicles.”

ZiL Bychok

Motors would be built in another facility at ZiL, and a new production line would be installed. “Orbital would support the establishment of a complete engine plant, including equipment, factory layout and technology,” Johnsen said.

ZiL would build twice as many engines as cars because it would seek to sell half the output to other automakers in Russia, Pruss said. One anticipated customer is OAO ZMA (Zavod Mikrolitrazhnykh Avtomobiley or Factory of Small-Displacement Cars), a subsidiary of AO KamAZ, a truckmaker based in Naberezhnye Chelny, east of Kazan in Tatarstan. ZMA builds Oka, a 3.2m-long car, the shortest vehicle produced in Eastern Europe.

Oka, named after a 1,480km-long river in Russia, receives powertrain mainly from AvtoVAZ. But engine supply has been crimped by capacity constraints at the Lada maker, and ZMA has been looking for alternative sources. Orders for Oka have been high, largely because the car costs $1,500 (one of the cheapest vehicles in the world). But output of 33,561 last year was barely half of annual capacity for 70,000, due to the motor shortage.

Oka

Orbital OK for Oka

“A 0.8-litre two-cylinder version of our engine would suit Oka, and it would improve the car’s performance, especially in extreme temperatures familiar to Russians,” Johnsen said. “Once it is made in Russia, the motor will be highly cost competitive too.”

(AvtoVAZ’s 0.65-litre two-cylinder engine allows 30hp-35hp for Oka, but Orbital’s powerplant would generate 50hp-55hp, Pruss said. “Oka will fly,” he said.)

KamAZ cab facelifted by Venture

The minicar would be a convenient customer for Orbital engines because Pruss is KamAZ vice president for new development, and Venture has a contract to redesign the exterior and interior of Oka. (The job, expected to take nine months, could start in June 2001.)… The US company, which recently facelifted KamAZ’s existing truck cab, expects to start designing a new cab this year… The truckmaker could supply parts for Orbital engines made in Moscow, including cases and connecting rods.

[Oka was designed in the late 1980s in Serpukhov (roughly 90km south of Moscow) by SMZ, a company currently named AO SeAZ. The company, now owned by AvtoVAZ, also builds Oka, and it similarly could be a buyer of Orbital engines. (SeAZ modifies some of its cars for handicapped people.)]

Venture, a privately-held enterprise based northeast of Detroit in Fraser, may lack the public stature of automakers aiming to build cars in Russia. But its profile is impressive, including net sales of $2.3bn in 2000 (expected to reach $3bn in 2001). The turnover reflects the delivery of parts and professional services to all major automakers, and Venture’s work has appeared in many of the most admired vehicles on the road, including Chevrolet Corvette and Dodge Viper. Indeed, Venture has a passion for performance cars. In 1999, it even bought a controlling stake in Shelby American Inc (based in Las Vegas, Nevada, USA), creator of the famous hand-made roadster Cobra. All exterior and interior plastic on Shelby’s open-top two-seater Series-1 is from Venture too.

Ataman-2 (GAZ-3106)

source: Avto-Revue

Ataman-2 (GAZ-3106)

source: Avto-Revue

Venture already has completed prominent work in Russia for OAO GAZ (Gorkovsky Avtomobilny Zavod or Gorky Auto Factory), the country’s biggest maker of commercial vehicles and second-biggest carmaker, recently taken over by OAO Sibirsky Alyuminiy, a Russian metals group. Venture has built two fibreglass prototypes of future models for the automaker: Ataman-2 (a sport-utility vehicle code-named GAZ-3106) in 1999; and new Volga (a rear-wheel-drive sedan code-named GAZ-3111) in 1998. The 3111 entered trial assembly last year, though its prospects for serial production will remain unclear, until GAZ’s new owner finalises a manufacturing programme for the financially-troubled automaker.

The US company also plans to support foreign manufacturers scheduled to build cars in Russia, and it is opening a site in St Petersburg to supply Ford’s plant in Vsevolozhsk with several parts, likely to include bumpers and centre consoles.

GAZ-3111

Challenges ahead

The argument for the Venture-ZiL idea looks compelling: Russia desperately needs fresh supplies of good cars that are cheap and easy to build. But the implementation of this blueprint faces big challenges. Among them: a network to sell and service the vehicles must be developed; and customers in Russia must be persuaded to buy a model never mass-produced before, featuring a motor never in cars sold to consumers before. Some observers believe Russia is not the place to try to set commercial and industrial precedents. However, ambiguities and uncertainties in the economy there offer prospects for experimentation rare in mature markets: bad ideas can be punished harshly, but good ideas can be rewarded on a large scale. If Venture and ZiL prove their mettle in Russia, they may reshape the future of the car industry there.

Sign up for our daily news round-up!

Give your business an edge with our leading industry insights.

Sign up