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. Last Updated: 07/27/2016

GM-AvtoVAZ Split Moves a Step Closer

General Motors' joint venture with AvtoVAZ appears to be on the verge of collapse, as the Russian state-controlled carmaker has asked GM to either sell its 41.5 percent stake in the venture or buy out AvtoVAZ's stake, Vedomosti reported Wednesday.

A divorce would end Russia's first post-Soviet international car project, in which GM and AvtoVAZ each hold 41.5 percent and the European Bank for Reconstruction and Development holds the remaining 17 percent.

A spokesman for AvtoVAZ board chairman Vladimir Artyakov confirmed Wednesday that the parties had been in talks.

"At present, negotiations are under way on how to optimize future activities," Ivan Skrylnik said by telephone Wednesday. "The parties are exchanging their views on the future." He declined to comment further, saying the sides had agreed not to disclose the nature of the talks.

Vladimir Yakushenko, a spokesman for AvtoVAZ general director Igor Yesipovsky, who also chairs the board of the GM-AvtoVAZ venture, said by telephone from Tolyatti that he did not know of any concrete proposals.

Marc Kempe, a spokesman for GM Europe, declined to comment on the newspaper report, saying GM did not "publicly speculate" on the future of its joint venture. It was only "natural" that after several years of cooperation, the carmakers might be discussing the venture's future, he said.

"There are lots of good reasons to continue as it is," Kempe said.

A spokesperson at GM's Russia office declined to comment. Warren Browne, head of GM in Russia and the CIS, was out of the country Wednesday.

Richard Wallis, spokesman for the EBRD in Russia, also declined comment Wednesday.

In its report, Vedomosti cited a source close to "the management of a Russian concern" as saying that AvtoVAZ had asked GM in early April to end their partnership.

GM was the first Western carmaker to come to Russia after the Soviet collapse, and its partnership with AvtoVAZ was viewed as a pioneering effort to revive the country's car industry. GM CEO Rick Wagoner traveled to Russia in 2001 to ink the $330 million deal with then-AvtoVAZ head Vladimir Kadannikov and EBRD first vice president Charles Frank.

In December, Russian arms trader Rosoboronexport took control of AvtoVAZ and announced it was considering pulling out of the venture, saying AvtoVAZ was losing money on it.

AvtoVAZ supplies car parts to the joint venture that makes Chevy Niva sport utility vehicles and Chevy Viva sedans. In February, the Tolyatti-based venture halted production for about a week over a dispute about the price of parts supplied by AvtoVAZ. A few days after production restarted, the venture raised Chevy Niva prices by 3,500 rubles ($125). Last week, the price was hiked by another 4,000 rubles.

In February, the venture said production this year would fall by 9 percent to 47,000 vehicles.

Besides its venture with AvtoVAZ, GM assembles its own models at a car plant in Kaliningrad and has recently been reported to be considering its own production facility in the country.

As recently as February, GM-AvtoVAZ general director Richard Swando said the venture was a "jewel" and should be cherished.

Some industry analysts said they had seen the breakup coming for some time.

"It was obvious," said Gairat Salimov, an auto analyst with Troika Dialog. Both sides pinned too many hopes on their production partnership, he said. AvtoVAZ wanted access to new technologies and new export markets, while GM wanted quick and cheap access to the Russian market. "Neither party got what it wanted," he said.

Both Salimov and Kirill Chuiko, a car analyst with UralSib, said AvtoVAZ would likely buy out GM's stake, which Chuiko estimated at less than $100 million.