Volkswagen.gif” width=99>Skoda Auto AS, the Czech subsidiary of Volkswagen AG, may abandon plans to build cars in Russia with DOAO Izhmash-Avto, another sign of continuing difficulties for foreign manufacturers to produce vehicles there since the economy collapsed in August 1998, sources told today.

According to one official close to Skoda, the Czech company could announce a pullout this week, but others believe the automaker may let the project lapse quietly.

The easternmost site for car production in Europe, Izhmash-Avto is majority owned by OAO Izhmash, an industrial conglomerate 1,325km outside Moscow in Izhevsk, the capital of Udmurtia, one of 21 autonomous republics in Russia. Izhmash is the biggest maker of motorcycles in the former Soviet Union – and the main source for AK Kalashnikov assault rifles. Skoda has been talking for three years about building vehicles at Izhmash-Avto, outlining in 1999 a $250m venture for 100,000 cars a year, named Skoda Auto Udmurtia (owned 75% by Skoda, 25% by Izhmash).

Negotiations were advanced, and the Czech company even identified foreign suppliers to invest in Russia to support the project. Dates to launch output had been set several times, only to be postponed. But terms of a deal always remained unsettled, partly due to Skoda’s concerns about the ownership status of facilities and land for the venture on Izhmash territory.

This week, Skoda officials declined to state whether options with Izhmash-Avto remained alive, but prospects have been bleak for months. In an interview published 14 December 2000 in Czech daily newspaper Pravo, Skoda chair Vratislav Kulhanek said, “We are still interested in Russia. But, according to the latest statement by the director of the car plant in Izhevsk, there is no interest on the side of the partner… If Izhevsk will not happen, we have to look somewhere else.”

At the Moscow motor show in August 2000, Izhmash-Avto director Mikhail Blokhin said, “Skoda makes no sense for us. We cannot sell its cars in Russia in significant volumes at current prices.”

Plus Izhmash-Avto has other plans. Since March 2000, it has been under management control of Sok Group, a diversified enterprise based in Samara, boasting complex ties to AO AvtoVAZ, maker of Lada vehicles.

SOK reportedly wants Izhmash-Avto to assume production of several models now made by AvtoVAZ, including 2104 station wagon, 2105 sedan, 2107 sedan and Niva 2121 off-road vehicle. Izhmash-Avto already has assembled a trial batch of 2121. (A modern version of Niva, dubbed 2123, would be built in a planned venture between AvtoVAZ and General Motors Corp under the US automaker’s badge Chevrolet.)

Besides plans for AvtoVAZ models at Izhmash-Avto, SOK aims to revitalise Izh-brand vehicles. Output of these collapsed from 180,823 in 1990 to 15,004 in 1999. But the Izhevsk plant forecast production of 20,000-25,000 in 2000 and 55,000-60,000 in 2001. (Izhmash-Avto made 7,205 cars and 10,393 pickups in the first nine months of 2000.)

“We plan to increase annual capacity at Izhmash-Avto to 210,000-220,000,” Blokhin said, adding the factory would start to operate profitably once output reaches 4,000 per month.

SOK, based 60km southeast of AvtoVAZ headquarters in Tolyatti, also bottles mineral water, constructs buildings, produces medical equipment and plastic windows and runs entertainment centres. (SOK is an acronym in Russian for Samara Window Co; Sok is the name of a river in Samara region; and ‘sok’ is Russian for ‘juice’.)

A termination of plans between Skoda and Izhmash-Avto would come amid major rethinks by global players about building cars in Russia. In December 2000, learned Renault may revamp its product profile for a venture in Moscow, essentially substituting French-branded vehicles with models from its subsidiary in Romania, SC Automobile Dacia SA.

Similarly, in October 2000, GM scaled back its project with AvtoVAZ, dropping plans to make a version of Astra, a model from its German subsidiary Adam Opel AG. The planned venture now would focus only on making Niva.

Fiat Auto SpA faces uncertainties with ZAO Nizhegorod Motors (NM), its planned venture with OAO Gorkovsky Avtomobilny Zavod (GAZ), Russia’s second-biggest automaker behind AvtoVAZ. NM’s future has been in question since OAO Sibirsky Alyuminiy announced in November 2000 that it had accumulated equity of 25% plus one share in GAZ. The metals group, now the automaker’s biggest stockholder, is expected to overhaul GAZ’s operations, and foreign projects could be among the first areas to be affected.

Contact Ryan James Tutak, associate editor of for Eastern Europe:
F +36-1 / 317-7257
T +36-1 / 266-2693

To read a feature on Renault’s plans for Dacia in Russia, please click here.

To read a feature explaining SOK’s role with AvtoVAZ, please click here.

To read a feature on Sibirsky Alyuminiy’s bid for GAZ, please click here.