GM seeks salvation in Russia, considers a factory in St. Petersburg

[DmitryKo]

http://www.interfax.ru/r/B/0/0.html?id_issue=11479659 (in Russian)

General Motors negotiates a factory at St. Petersburg, Russia
March 16, 2006, 9:57AM

INTERFAX. Automobile maker General Motors negotiates conditions for new factory with the authorities of St. Petersburg, reports Vedomosti newspaper, citing sources at both federal and regional goverments. The interviewees hint the negotiations are at the beginning phase and sides are far form reaching the agreement as of now.

GM has already entered the Russian market, creating a joint-venture with AvtoVAZ back in 2001 which produces the Chevrolet Niva and the Chevrolet Viva. Besides that, a low-volume production of Chevrolets, Hummers and Cadillacs is undergoing at Kaliningrad's Avtotor.

In 2005, GM has sold a total 75 000 cars (counting the joint-venture). As Warren Brown, the company's executive director for Russia and CIS, says, GM is planning to double the sales of their cars in Russia.

As of now, the financial status of GM is unstable, because the company finished the last year with $8.6 billion debt. Stock shares have dropped by 52%. This is the biggest decrease among the companies listed in Dow Jones Industrial Average index. To improve financial results, GM had to sell some of its actives, including Suzuki Motor and Fuji Heavy Industries, and also cut dividents by 50%.


Extended version:

GM seeks salvation in Russia
The giant with $8.6 billion debts is going to build a factory in Peters

Yulia Fedorinova, Anatoly Temkin
Vedomosti, 16.mar.2006, #45 (1572)

Despite multi-billion losses, decreasing sales and sellout of the actives, General Motors, the largest car maker in the world, is going to finance a new production site in Russia. As Vedomosti have learned, the Americans have already discussed a possibility of bulding an assembly plant with the authorities of St. Petersburg. The experts assure that inexpensive models will be built there, either the Chevrolet Aveo or the Lacetti.

General Motors was one of the first foreign automakers who came to Russia. Unlike Ford, GM preferred to work with a local partner, AvtoVAZ. In 2001, they registered a joint venture that started producing the Chevrolet Niva, based on the well-known VAZ Niva. And in 2005 the joint venture adopted the Chevrolet Viva, the older variant of the Opel Astra. GM also builds some of its car models on the Kalingrad-located Avtotor (that is, the Chevrolet Tahoe and Traiblazer offroaders, the Hummer H2 and the three Cadillacs).

Now, GM starts to consider its own factory in Russia. By the statement of Vladimir Blank, the chairman of St. Petersburg's government Comission for economic development, industrial policy and trade, at least four large automobile companies are negotiating to build their factories in the city. And one of them is GM, as several officials of federal and regional governments have told Vedomosti. The meetings between GM representatives and the Governor's officials didn't come unnoticed to local and international offices. "But there were no detailed negotiations, these meetings should actually be treated as consultations", said one of our interviewees. Irina Kalashnikova, director for public relations of GM CIS, could not either confirm or deny the fact of negitiations.

General Motors is not in the position to start new projects. It's rather otherwise - the corporation is selling out its actives in order to cover last year's record losses of $8.6 billion and to restructure unprofitable North American operations. GM is ready to say goodbye to its most profitable active, 51% of shares in General Motors Acceptance Corporation. Also, GM is going to sell 17% share in Suzuli Motors for $2 billion. In last October, GM sold 8.7% share in Fuji Heavy Industrie to Toyota for $310 million, and another 11.7% shares were sold on the open market.

Nevertheless, the new production site in Russia is very probable, admit our sources who are familiar with GM's operations. "Due to global decrease in production, the corporation has too many production facilities which are not fully loaded, so some equipment could be relocated to Russia", notes a former GM manager. This could reduce projected costs by around $200 million, concludes Yelena Sakhnova, analyst for Deutsche UFG.

All experts are united in that GM probably wants to produce inexpensive cars in Peters, that is the Chevrolet Aveo (last year's sales - 7700 units, price starts from $10 690), the Lacetti (6975 units, from $13 350) and the Rezzo (199 units, from $16 990). "GM is placing its bets on Chevrolet cars, globally, and Russia will probably make no exception", recounts Sergey Alexeychuk, an independent car-market expert. "These cars are very well suited for Russia, and it's not a secret they can sell several times more of them", agrees Alexander Agibalov, executive director of AG Capital. Morever, if GM receives some tax preferences, these Chevrolets can get even cheaper - the Lacetti for example could cost 20% less, says Agibalov. However, our closed GM sources make a notice that Avtotor has already started assembling the very same cars. Still, in order to make profit, production volume has to exceed 25000 units yearly, and Avtotor is not able to provide it, says Alexeychiuk.

If GM wil acquire its own factory, it will probably not affect Avtotor in a big way, as it also partners with Kia, Chery and BMW. "We have a solid relationship with GM, and we're starting assembly of Hummer 3 in April", says Avtotor's representative Vladimir Foshenko. But this will rather mark the end of partnership with AvtoVAZ, says Sakhnova, because the cars produced by GM-AvtoVAZ joint venture and this new factory will compete with each other. She assumes that GM is considering its own factory in order to avoid sharing its technology with AvtoVAZ. GM did not send any recent car model to the joint venture, and the relationships with AvtoVAZ were deteriorating after the new Rosoboronexport management took it over. In february, GM-AvtoVAZ was idle for more than a week because AvtoVAZ stopped supplying them with CKD kits of the Chevrolet Niva.

AvtoVAZ refused to comment.


GM is the largest car maker in the world. In the year 2005 it has sold 9.17 millon cars. Brands include Chevrolet, Opel, Pontiac, Buick, Cadillac, Saab, GMC и Hummer. Preliminary net sales amounted in 2005 to $193,5 billion, operating loss amounted to $8,6 billion. GM has sold 76 578 cars in Russia in the year 2005, of which 51 806 were made by GM-AvtoVAZ joint-venture.

http://www.vedomosti.ru/newspaper/ar...6/03/16/104040 (in Russian)

Related threads:
GM plans to double car sales in Russia by 2010
Korean-sourced Chevrolets are to be built in Russia; GM-AvtoVAZ is not involved
Production stops at GM joint venture in Russia
GM's Russia venture starts up again

[JVal14]

World automakers have been relatively slow to capitalize on Russia's economic expansion. If GM sees dramatic growth opportunity there (and they already have really), they should definitely go for it and secure a large, solid market share. The sooner they do, the less competition they'll get from Chinese, Japanese, European, and even Indian companies. Russia's always risky because......well, it's Russia. But any opportunity that GM has for rapid growth and revenue, they should take.

[DmitryKo]

Can anyone explain me why this article goes to "GM Europe and Asia" but "GM plans to double car sales in Russia by 2010" goes to "Canadian and International" even though they talk about the exact same topic?

[DmitryKo]

Originally Posted by JVal14

World automakers have been relatively slow to capitalize on Russia's economic expansion.

Well, maybe it's because there's no economic expansion? And if it wouldn't for high oil prices, the matters would be far worse...

[zl-1]

Originally Posted by DmitryKo

Well, maybe it's because there's no economic expansion? And if it wouldn't for high oil prices, the matters would be far worse...

Exactly. Russia is a long term bet that may or may not be a winning bet in terms of the local market taking off. What is interesting is Russia as a place with low labour costs, which in turn is good for Europe-bound Chevrolets.

On another note, I wouldn't get my hopes high regarding this as something that's going to save GM. There's no silver bullet that can save GM is their auto operations continue losing $11 billion a year like in 2005. GM's main problem is North America and that's where they have to focus their attention.

[ScottS]

Russia's used to ****************ty cars, so this should work out okay for GM.

[joey]

I thought the only ones with money in Russia where in the Mob and they only buy Benz's not Chevy's.

[01cavalier]

This is a smart move, they won't have to rely on joint ventures and will also still avoid the tariffs.

[cfch3399]

You can see the headline in 15 years. "Third gen. Sequoia outsells GMT-900 Tahoe. GM pulls out of US market to concentrate on Latin America, Eastern Europe, the Middle East, and China."

[bdubsee]

Wow. A couple of ignorant comments about Russia here. You may want to educate yourself and try travelling before making bold sweeping statements about another culture. I've actually visited the AvotVAZ plant in Togliatti, Russia. It's a shame that the jv isn't working out because the people there were very enthusiastic about the project.

[bdubsee]

Originally Posted by joey

I thought the only ones with money in Russia where in the Mob and they only buy Benz's not Chevy's.

There is a burgeoning middle class that is quite affluent but prefer something other than an ostentatious Euro ride.

[JVal14]

Originally Posted by DmitryKo

Well, maybe it's because there's no economic expansion? And if it wouldn't for high oil prices, the matters would be far worse...

The Russian stock market has doubled in the past year, has it not? I assume you would know better than I would since you're from there, but I was under the impression that there has been a lot of economic progress in Russia.

Russia ended 2005 with its seventh straight year of growth, averaging 6.4% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, since 2000 investment and consumer-driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than 10% over the last five years, and real personal incomes have realized average increases over 12%. - CIA World Factbook

[bdubsee]

Originally Posted by 01cavalier

This is a smart move, they won't have to rely on joint ventures and will also still avoid the tariffs.

If you read closely, the new facility would be a joint venture. At the time the AvtoVAZ deal was struck, the safest way to do business in Russia was with a local partner. You forget that Russia is not a very new country or economy. There are still many vestiges of Soviet times.

[bdubsee]

Originally Posted by ScottS

Russia's used to ****************ty cars, so this should work out okay for GM.

How many Russian cars have you been in? Can you even name one? (Besides the Niva, that is.)

[Mikkoo]

If GM plays it's cards right, Russia could be a big market for them in
the future. As the middle class grows, there will be a desire for
cars that are more than basic transportation.