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RUSSIA: Foreigners close to car plant deals

By just-auto.com editorial team | 1 June 2011

Six foreign carmakers, including Ford and Volkswagen, are finalising agreements to spend between US$4bn and $4.5bn in total with local partners in Russia over the next three to four years, a media report said.

Russia has set a 1 June deadline for car makers to present to the ministry of economy investment plans for expansion or building new local facilities in exchange for paying minimal or no import duties on car components and the investment total may be announced soon, a source told Dow Jones.

Volkswagen and General Motors are still in talks with the government, providing the final details of their investment plans, the source said. Ford's joint venture with local automaker OAO Sollers has already filed its plan for a $1.4bn spend on the construction of three plants in Russia.

Other companies talking with the government include OAO AvtoVAZ, its 25% shareholder Renault and alliance partner Nissan Motor plus Russian truckmaker Kamaz and Daimler, the source told Dow Jones.

"GM, Volkswagen and the five-party group plan to invest around $1bn each," the source said.

Carmakers that pledged investment in Russia in return for import tariff discounts face a number of risks, including a potential drop in margins following the deeper localisation of production, analysts told the news agency. "Foreign majors would prefer to produce the components at their specialised facilities in Europe or elsewhere and import them into Russia but are required to localize them," VTB Capital analyst Vladimir Bespalov told Dow Jones.

Russia wants to enter the World Trade Organisation this year and its negotiators have said the exemptions regime for car component imports is one of the issues still to be agreed on.

In return for the exemptions, or minimal import duties, up until 2020, companies must agree to terms including building new Russian facilities each with total annual production capacity of 300,000 units within the next four years, or modernise existing plants with a total annual capacity of 350,000 cars within the next three years.