Ukrainian automaker ZAZ is on the brink of forming an eastern European auto manufacturing force.
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ZAZ, its majority owner UkrAvto, and Polish treasury officials have agreed on a timetable for ZAZ to buy Polish automaker FSO, although neither will disclose a date, according to Automotive News Europe.
Neither ZAZ nor FSO have attracted much notice in western Europe since both former Daewoo Motor assets were shunned by General Motors when GM acquired the bankrupt Korean automaker in 2002. But that could change quickly.
Combined, ZAZ and FSO have the capacity to manufacture 400,000 vehicles annually. As a single entity, ZAZ/FSO also would have several intriguing attributes:
– Home markets with a population of 102 million
– National automaker status in two markets – one already in the European Union, the other with duty-free access to Russia
– Low-wage work forces
– Contract manufacturing deals with General Motors, Mercedes-Benz and Russia’s AvtoVAZ
– Vertical integration – UkrAvto dominates Ukrainian vehicle sales and servicing.
UkrAvto is keeping its options open on future development – it doesn’t want to offend any of the major automakers with which it does business.
“It depends on what is economically appropriate [to develop] production,” said Tariel Vasadze, honorary president of UkrAvto and a member of the Ukrainian parliament.
What UkrAvto and ZAZ are missing is a car brand that is both modern and distinctly their own property.
ZAZ might develop its own product or create a design studio, Vasadze said.
“But at the moment we are interested in developing production cooperation with General Motors and DaimlerChrysler,” he added.
UkrAvto is a vertically integrated group that includes car manufacturing, car sales and maintenance. It is even looking into establishing a network of fuel stations. UkrAvto had nearly 60% of the booming new car market in the Ukraine in 2004.
UkrAvto and its ZAZ subsidiary are the prime points of entry for outside automakers into the Ukraine. Beyond manufacturing its own Tavrija-brand vehicles and a modified version of the Daewoo Lanos, UkrAvto assembles cars from kits for Opel, GM Daewoo, DaimlerChrysler’s Mercedes brand and AvtoVAZ.
In May 2004, new legislation exempted local car producers from paying value-added tax for five years if profits are reinvested. The law let ZAZ import machinery and certain components. At the same time, the Ukraine raised customs on imported new cars to as much as 20% from a former high of 3% and restricted used car imports.
Both Poland and the Ukraine offer more raw potential than developed markets.
Their population is slightly greater than France and Spain combined, but only 498,000 cars were sold in the countries last year.
The Economist Intelligence Unit expects the two markets to grow to 743,000 units by 2009, up 49%.
