26 Feb '10
Oleg Kouzbit, Online News Managing Editor
Russian car maker Sollers has recently announced its long-awaited JV with Italyís Fiat on its home turf in Tatarstan. The partners will put up technology and manufacturing space worth over $400m. The JVís stated goal is to produce up to 500,000 Fiat and Chrysler vehicles a year by 2016. With car sales still limping along at less than 1.5m a year, almost 50% of what they were in 2008, it wonít be an easy rideóbut a generous 15 year, $2.89bn loan from the Kremlin will go a long way to soften the bumps.
Earlier this month Russian auto maker Sollers and Italyís Fiat announced that they had finally clinched a $3.3bn joint venture to assemble cars and SUVs in Sollersí home Republic of Tatarstan.
The Italians are reportedly bringing $205m worth of technology and CompactWide production platforms. Sollers is kicking in its Tatarstanís Naberezhnye Chelny assembly plant and its Zavolzhye Engines factory in the Nizhny Novgorod region.
Up to 90% of the cash portion of the deal will reportedly be secured through a 15-year RF loan.
The JV plans to launch production by late 2012 and has set a goal of 500,000 Fiat and Chrysler vehicles a year by 2016.
Sollers, formerly known as Severstal-Avto, now includes auto maker UAZ and Zavolshye Engines (ZMZ) and runs SsangYong, Fiat and Isuzu production sites throughout Russia.
The second time around
It is the second time the two companies have tried to put together a JV.
Sollers and Fiatís first attempt was a $400+m deal in mid-2008 in the Nizhny Novgorod region. Hailed by top local officials, production plans called for assembling Fiat Lineas and diesel engines at Sollersí ZMZ plant.
Announced before the financial crisis, the plans eventually evaporated by the year end.
The Kremlin weighs in with $2.9bn
Despite the meltdown in the auto sector Sollers has been on a roll. Its new deal with Fiat comes just six weeks after the firm launched its Vladivostok-based production of Japanese 1.5-25-ton Isuzu trucks, Korean SsangYong SUVs and Italian Fiat minivans.
Sollers was reportedly helped out by a discounted $42m six-year loan from Russiaís VEB Bank.
Then in January the firm announced that it would be assembling a newly-designed Fiat 4WD Ducato at its Far East factory later this year.
According to Kommersant, Prime Minister Vladimir Putin was so enthused with the newly-inked Sollers-Fiat deal that he has pledged a $2.89bn government loan.
The loan wonít have to be repaid until 2015óan unusually long term. Now that the auto industry has been officially declared a priority in the implementation of Russiaís anti-crisis measures, analysts feel that the loan is a clear signal that the Kremlin is serious.
Almost empty to half full?
The contrarians are quick to point out that it could be more good money going to waste.
The AEB (Association of European Businesses) reported in January that 2009 Russian car sales were down 49% year-to-year, driven down by weak demand, increased duties for imported cars, the credit crunch, and a faltering ruble.
The beginning of 2010 wasnít pretty eitheróthe Russian car market sagged 37% y/y in January, the AEB said. The Associationís very conservative forecast for the remainder of 2010 is that sales will be ďimproving slightly.Ē
AvtoVAZ recently announced a 51% production boost for this year, but analysts feel that after the shellacking the firm took in 2009, the increase will barely be enough for the firm to survive.
The Sollers-Fiat JV isnít planning anything for 2010, but its forecast of 500,000 car peak capacity by 2016 isnít creating many believers.
Itar Tass reports that some observers feel that Russiaís automotive market wonít fully recover until after 2015ójust the time when Soller-Fiat will be gearing up to meet demand?
Clunkers to save the day?
After billions of dollars spent trying to save Russiaís inefficient auto giants, the RF government has taken a page from the Obama administration and has announced a $340m Ďcash-for-clunkersí program to start on March 8.
The plan is to buy up as many as 200,000 cars manufactured in or before 1999 at a price of $1,700 per vehicle to help boost demand for new cars.
AFP believes that there are more than million cars on the road ten or more years old. If the program proves popular, it might even be extended.
Whether Russians give up their clunkers isnít the issue. Even the most generous estimate is that only 1.5 million cars will be sold in Russia in 2010, almost unchanged from 1.47 million in 2009.
With most global car makers suffering double digit sales declines and even the sectorís most reliable manufacturer Toyota recalling millions of its cars, it will take more than tax rebates and buying clunkers to get Russians buying again.