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. Last Updated: 07/27/2016

Ford, GM Plants Ready to Roll

MTHenrik Nenzen, Ford's chief in Russia
The heads of Ford and General Motors in Russia said Wednesday that plans to make cars in the country were on target to start this year and were confident about the market despite past volatility.

Some Western carmakers have come to grief due to Russia's many crises or bureaucracy.

The latest was a project by Fiat and Russia's second-largest car maker, the Gorky Auto Plant, or GAZ. It was first announced in 1997, hit by a 1998 crisis and shelved last week by GAZ after never really getting off the ground.

But the market, with a potential customer base of more than 100 million and where car ownership levels are low compared with the West, is too big to ignore.

GM, the world's No. 1 automaker, has launched a project to build cars with Russia's biggest car firm, AvtoVAZ. The aim is to start production in September, and GM Russia operations head David Herman said this plan was on track.

"We really are on time. Our original planned start of production of Sept. 23, 2002, really looks certain now," Herman said in an interview.

The plant, costing $340 million, involves GM and AvtoVAZ investing $100 million each and $40 million from the European Bank for Reconstruction and Development.

The EBRD, set up to support the economic transition of former communist countries, will also lend $100 million. Full capacity, to be reached in 2004, will be 75,000 units annually.

Herman said he saw the project's success based on the fact that the Chevy Niva sports utility vehicle to be made at the plant will be affordable for Russians and of export quality.

"The main difference between us and anything anyone else did is that we are going to make a product that can be sold for substantially under $10,000," Herman said.

Pricing is very important for Russia, where wages are estimated to average just $150 a month, although in cities such as Moscow and St. Petersburg they are several times more.

Nevertheless, of the more than 1 million new cars sold in Russia last year, only 80,000, or less than 10 percent, were new foreign cars and the rest were Russian. A further estimated 600,000 second-hand foreign cars were imported.

The head of Ford's Russian operations, Henrik Nenzen, said his company was due to open a $150 million plant just outside St. Petersburg in June as planned.

The long-term bet of the company was that Russian purchasing power would gradually grow and that there was a chance for a fast rise in the number of new foreign cars being bought.

"The opening [of the plant] will be in the second quarter, the exact date is not yet decided. ... Everything is on time and we actually body-welded the first car two weeks ago," he said.

He said production at the factory, which will start with the Ford Focus, would rise in line with an expected growth in sales of Ford vehicles in the next few years. The sales targets were 8,000 units this year, 13,000 in 2003 and 23,500 in 2004.

Nenzen said reforms passed under President Vladimir Putin had instilled confidence in the outlook for the market.

"We believe that many of the actions the present government are taking are very good for business and for running a business here," he said, referring to measures including tax cuts and efforts to decrease bureaucracy.

"We also think that the market for non-Russian makes will grow quicker than the total industry development. ... If of 1.8 million [cars sold in 2001 including second-hand vehicles], only, say, 20 percent is going to be foreign, then the market will quadruple for [new] Western makes," he added.