GM seeks stake in Russian carmaker

Detroit automaker aims for bigger presence in fast-growing market by partnering with AvtoVAZ.

Christine Tierney / The Detroit News

General Motors Corp. is bidding for a substantial stake in Russia's largest carmaker, OAO AvtoVAZ, to strengthen its position in one of the world's fastest-growing major auto markets.

In Russia, "the market is growing 30 percent year-on-year and GM's sales growth is close to 100 percent, so we're experiencing enormous demand for our products," said Marc Kempe, a GM spokesman in Europe.

"We're exploring a variety of ways to meet this demand, and this is one possible way forward."

Kempe did not disclose the size of the bid but said it was for a significant stake in AvtoVAZ, which is GM's manufacturing partner in Russia.

State-controlled AvtoVAZ, founded in 1966 with assistance from Italy's Fiat SpA, produces close to 700,000 vehicles a year, including Lada cars. In 2001, GM and AvtoVAZ formed a venture that produced about 50,000 Chevrolet-badged vehicles in each of the past three years.

But relations between the partners have been strained at times, and AvtoVAZ has sought additional partnerships to obtain technology to compete against foreign brands piling into the lucrative Russian market.

Last year, while new car sales rose more than 20 percent in Russia, AvtoVAZ's sales grew less than 1 percent, according to consultants Global Insight. By contrast, foreign brand sales surged more than 60 percent in Russia, where a boom in the energy sector is fueling an economic expansion. GM sales rose 73 percent to 132,600 vehicles.

Industry experts say the Russian market is on track to become Europe's second-largest after Germany this year or next. Car and light truck sales are forecast to exceed 2.2 million there this year.

According to media reports in Europe, AvtoVAZ managers have floated the possibility of a sale of 25 percent of the company, and potential bidders are said to include Fiat and France's Renault SA.

"AvtoVAZ needs scale and it needs technology," said Michael Robinet, vice president at forecasters CSM Worldwide in Northville.

AvtoVAZ is expected to pick its strategic investors, including a foreign manufacturer, within weeks.

It signed a preliminary accord in May to produce cars with Magna International Inc., a Canadian supplier that also produces cars for automakers, but a Russian newspaper said last month that idea had been dropped.

GM's bid does not entail changes to its venture with AvtoVAZ in Togliatti, a city on the Volga River named after an Italian communist. GM and AvtoVAZ each own 42 percent, with the European Bank for Reconstruction and Development holding the balance.

After a dispute among the partners erupted last year, leading to a 10-day production halt and clouding the venture's outlook, GM began building its own plant on the outskirts of St. Petersburg.

Ford Motor Co., Toyota Motor Corp. and Nissan Motor Co. also are making or planning to build vehicles in or around St. Petersburg to avoid high import tariffs.

GM also has a production venture in Kaliningrad, a Russian enclave on the Baltic Sea.

"GM is probably thinking, we want to be well placed when Russia is not only a stronger domestic market, but a big exporter of vehicles," Robinet said.

GM also is tied to Oleg Deripaska, one of Russia's wealthiest businessmen, who is close to President Vladimir Putin. Deripaska has bought GM shares -- though not enough to trigger the Security and Exchange Commission's 5 percent disclosure requirement.

Deripaska controls Russia's second-largest carmaker GAZ, which has an equity relationship with Magna and also has business ties with Chrysler LLC.

GAZ is about to start making a new car called the Siber based on Chrysler's previous-generation Sebring sedan.

Last week, the head of GAZ's car division, Leonid Dolgov, met with Chrysler executives in Auburn Hills to discuss the possibility of more cooperative deals, including making Chrysler vehicles in Russia.

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.