GENEVA (AP) Chevrolet is going to Russia.
General Motors Corp. became the first U.S. automaker to sign a manufacturing deal in Russia, agreeing Tuesday to form a joint venture with formerly state-owned AvtoVAZ to make a sport-utility vehicle under the Chevy label.
The $332 million project will produce roughly 75,000 of the vehicles, to be called the Chevy Niva, at AvtoVAZ's plant in Togliatti at the base of the Ural mountains, the company said during a news conference at the 71st International Auto Show in Geneva.
The new company will build an updated version of AvtoVaz' Lada Niva, an all-wheel drive light sport utility vehicle that dates back decades and has already made inroads in western Europe for being affordable and reliable.
GM and AvtoVAZ, Russia's leading automaker, will each hold a 41.5 percent stake in the new project, which will initially target the Russian market and eventually export the vehicle to Western Europe.
The London-based European Bank for Reconstruction and Development, which has a history of bankrolling capital investments throughout Russia, will put up the remaining 17 percent.
The move gives GM a lead in cracking the Russia market, ahead of such rivals as Renault, Fiat and Ford, which are still maneuvering for similar ventures. German automaker BMW has a small operation in the western region of Kaliningrad, while Ford has plans to build a plant in St. Petersburg to produce its popular Focus.
It is also the first step to enveloping AvtoVAZ in GM's overall European strategy, said David Herman, president of General Motors Russia.
"Both companies have the vision where we continue with other products in the future," Herman said, adding that a new car could also be jointly built as soon as 2004.
In the future, GM hopes to use Russia as a base from which to export parts and niche vehicles to western Europe, Herman continued, adding that GM's European divisions intends to tap AvtoVAZ's wealth of highly trained engineers.
The venture hopes to begin production of the Chevy Niva for sale in Russia in 2002 and begin exports in 2003, shooting for a target 20,000 to 25,000 vehicles concentrating first on the German market.
Aside from an injection of cash, General Motors will contribute manufacturing know-how to the project, including new molds for parts.
Herman said it was essential to team up with a Russian partner to break into the Russian market because making the huge investment to start from scratch didn't make sense in a market that has only 30,000 customers for cars priced at more than $10,000.
Profit margins are too low to justify such an outlay.
"If we were already selling 10,000 Tahoes in Russia, we probably wouldn't be having this conversation right now," Herman said of the upscale Tahoe, a sports utility model popular in the United States. "You have to understand that the Russian market is very limited."
New cars in Russia can sell for as little as $4,000. Herman said the company was hoping to price the Chevy Niva under $8,000 in Russia and considerably more than that when it is exported to western Europe.