Russian automaker OAO GAZ is pursuing aggressive plans to shake its heavy dependence on domestic sales, despite a jolt to its future this month by corporate raider OAO Siberian Aluminium (Sibal).

GAZ, currently relying on its home market for 90% of sales, announced it soon would start shipping kits of cars and light trucks for completion in Lithuania. The automaker now has 18 assembly projects in the former Soviet Union, spanning Belarus, Kazakhstan, Moldova and Ukraine. (Four are in Russia.)

Most operations are small. At 13 sites working last year, average output was 1,572. Only two built over 2,500. The largest venture with volume of 9,158 in Ukraine was KrymAvtoGAZ, ironically the biggest producer of vehicles there, due to chronic and grave problems at AvtoZAZ-Daewoo. (AvtoZAZ, formerly ZAZ, made 165,000 units a year in the mid-1980s. But AvtoZAZ-Daewoo produced only 6,040 cars in 1999.)

The satellite ventures assembled 20,441 vehicles last year, 8.5% of GAZ's production of 239,711. The automaker aims to double this percent next year.

GAZ hopes Lithuania will roll out over 1,000 units in 2001. Trial output of 150 this year, mainly GAZelle and Sobol commercial vehicles, is slated to start by December.

The operation in Lithuania is curious. The country borders Russia (via Kaliningrad), levies no import tariffs and sells only 4,000-7,000 vehicles a year. GAZ likely will struggle to sell 1,000 a year there, and prospects in Baltic markets nearby are not dramatically better. Demand for new vehicles last year was 10,329 in Estonia and 10,185 in Latvia.

But foreign ventures cost GAZ little, as local partners generally are responsible for facilities, investment and management. The automaker has equity in only a couple enterprises. GAZ, the Russian carmaker that exported least during Communism, may favour launching a variety of experimental and inexpensive projects to work out the locations and strategies that prove most viable.

Outside the ex-USSR, GAZ is looking to assemble in Iran and Poland. It aims to export 15,000 completely-built vehicles to Latin America next year, and an initial set of 1,002 units was shipped in October to a distribution centre in Texas.

But a shake-up in GAZ's ownership could mean a halt to new projects.

On November 15, Sibal said it had accumulated a stake exceeding 25% plus one share in the automaker, adding it planned to buy "absolute control" of GAZ. Two days later, Sibal head Oleg Deripaska and GAZ president Nikolai Pugin met, and the companies issued a joint statement last week agreeing to discuss cooperation. On November 29, GAZ's board of directors is slated to convene to review changes in the automaker's ownership. An extraordinary general meeting likely will be called then for late December to ratify changes in GAZ's leadership: Sibal is expected to gain high posts at the automaker.

"Newspaper reports indicate Sibal will introduce new management at GAZ, so it is hard to predict whether the Lithuanian venture will occur," said Eugene Satskov, auto analyst at Renaissance Capital, a brokerage in Moscow. "The automaker has been losing money, and Sibal will focus on returning GAZ to profitability by cutting costs. It is difficult to assess the impact of any austerity measures on new projects. But the operation in Lithuania will be small, so it may not be affected."

Informed observers estimate Sibal now controls 30%-40% of GAZ shares.

GAZ (Gorkovsky Avtomobilny Zavod or Gorky Auto Factory) is the second-largest producer of vehicles in the ex-USSR, behind Lada-maker AO AvtoVAZ. Its foreign partners include European Bank for Reconstruction and Development plus Fiat Auto SpA. GAZ is based 400km east of Moscow in Nizhny Novgorod, Russia's third-biggest city (renamed Gorky 1932-1991).

Contact Ryan James Tutak, associate editor of just-auto.com for Eastern Europe:
E rjt@pronet.hu
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T +36-1 / 266-2693

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