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. Last Updated: 07/27/2016

Putin Takes AvtoVAZ Model for a Spin

Itar-TassPutin taking Gref and Chemezov for a ride around the test-drive track. The Kalina reached 120 kilometers per hour.
TOLYATTI, Samara Region -- President Vladimir Putin on Friday flew by helicopter from his talks with European Union leaders to the AvtoVAZ plant in Tolyatti and gave his blessing to a preliminary deal between the carmaker and Canada's Magna.

After Putin witnessed the signing of an agreement to build a new 1.5 billion euro ($2 billion) plant, he walked along the facility's newest production line and took a Lada for a 120-kilometer-per-hour spin on the plant's test-drive track.

Magna chairman Frank Stronach and Siegfried Wolf, co-CEO of Magna International, inked a memorandum of intent with AvtoVAZ chairman Sergei Chemezov and Vladimir Artyakov, another senior AvtoVAZ executive, at AvtoVAZ's blue-glass headquarters building.

Metals tycoon Oleg Deripaska, who controls AvtoVAZ's nearest Russian rival, GAZ, also attended the ceremony. Earlier this month Deripaska invested $1.54 billion into Magna.

Putin's visit appeared likely timed to provide a positive news spin on a day dominated by frosty exchanges between Putin and German Chancellor Angela Merkel over democracy and trade relations at the nearby Russia-EU summit.

The deal confirms the outlines of a cooperation agreement struck in December that envisions initial production of 220,000 cars, in sedan, hatchback and estate body trims, later rising to 450,000 units per year. The plant will make a new, C-class model from scratch.

"The documents you have signed have potential. I hope it will be realized," Putin said, adding that the government would lend the project its support.

AvtoVAZ and Magna are each expected to put $1 billion into the project. Due to a lack of state funding, investment will likely come from a loan, Chemezov said on the sidelines of the ceremony. "We applied but they wouldn't give [the money] to us so far," he said of the government.

Some analysts have suggested that Chemezov, a close ally of Putin's, could join forces with the Kremlin-friendly Deripaska in an effort to compete more successfully with foreign carmakers in the country. Chemezov, head of state arms trader Rosoboronexport, was brought in to turn around AvtoVAZ in December 2005.

A further agreement between AvtoVAZ and Magna will be signed this fall once details of the project are hammered out, AvtoVAZ said in a statement.

Stronach said he was glad to make a contribution to the development of the Russian car industry. "We would like that it would be mighty not only at home, but internationally," he said.

Magna's cooperation with Russian firms had developed so rapidly that Stronach's friends joked that he spoke with "a Russian accent," he said during the brief signing ceremony.

At the plant, Putin was shown a range of AvtoVAZ models, including a C-Class prototype developed with Magna.

Federal Industry Agency chief Boris Alyoshin, who sits on the AvtoVAZ board, told Putin that the company needed $3 billion to overhaul its operations and sales.

"They are trying to raise some money," a company spokeswoman quipped.

Company officials also took Putin on a tour of the plant's Kalina production line. At one point, Stronach stopped to talk to a worker and Putin translated for them, state television reported.

Putin later took his place behind the wheel of a new Kalina sedan, accompanied by Chemezov and Economic Development and Trade Minister German Gref, and took the car for a drive around the plant's test track.

The car reached a speed of 120 kilometers per hour, Putin said after the drive.

"The car is not too bad for the purposes it's been made for," Putin said after the ride, adding that it cost less than $10,000. He then left in a black, chauffeured Mercedes limo.

AvtoVAZ vice president Viktor Baunov said the car's retail price was $12,000, however. "We need to make it less expensive," he said.