Finance, business

Basic Element and Japanís T.Rad pour $25m in car radiator JV

26 Mar '10
Oleg Kouzbit, Online News Managing Editor

Russiaís Basic Element and Japanís T.Rad have shaken hands on a long-awaited $25m aluminum radiator JV to be based in Nizhny Novgorod at GAZ Automotive Works. The new company will churn out as many as 600,000 T.Rad-designed radiators a year. The immediate customer is Deripaskaís GAZ Group and cooperation with GM and AvtoVAZ is also being sought. Longer-term hopes are pinned on supplying Japanese car makers producing or selling in Russia as well.

Russian Machines, which is part of Oleg Deripaskaís Basic Element, and Japanís auto component manufacturer, T.Rad, have launched a $25m aluminum car radiator JV at the Nizhny Novgorod-based GAZ Automotive Works plant.

According to Russian Machinesí Maria Obukhova, the new venture will have a capacity of 600,000 radiators a year, but during Phase 1 an estimated half of it will be annually produced.

A long and winding road

She also said that the partners had equal shares in the JV as originally planned. The venture has been kicking around since mid-2007 when a framework agreement to start production in Q1 2009 was signed between the future partners. By the time all the financials and logistics were put together the Russian auto sector was on its heels as a result of the global economic crisis and the original timeframe had to be scrapped.

Despite a 20+% appreciation of the dollar against the ruble the current investment is only slightly lower than the $30m announced three years ago. What could have altered is the partnersí contributions. Ms. Obukhova declined to reveal the percentage of ownership by each partner, but did say that the ďÖproportions had been shuffledÖĒ.

The partnersí profile

Russian Machines was set up in 2005 following the consolidation of Basic Elementís mechanical engineering assets and now operates in the automotive, aircraft-building, railroad and military production sectors.

Japanís T.Rad Co. specializes in manufacturing radiators and heat exchangers for Toyota, Honda, Mitsubishi Motors, Nissan and some other car makers.

Marketing big, one step at a time

At the moment, GAZ says it is the primary JV customer. A source at Russian Machinesí main Nizhny asset did not disclose expected volumes, saying only that GAZ will be first putting new radiators on its business-class GAZelle vans. Light trucks and other GAZ-made commercial vehicles will be outfitted later with JV products.

The JV, well aware that they cannot fully rely on GAZ to sell its anticipated production volume, is already in talks with GM and AvtoVAZ, Ms. Obukhova pointed out.

Thereís a good reason to tap AvtoVAZ, no matter how much beating it has taken during the crisis. The firm is being heavily invested in by a Renault-Nissan alliance and is looking forward to a hefty portion of the RF governmentís prospective $60bn injection to Russiaís auto industry.

The Togliatti car maker could be still sitting pretty, and with Renault-Nissanís deep pockets and technology AvtoVAZ may well embrace the idea of having its cars equipped with much more durable, efficient and eco-friendlier T.Rad-engineered radiators.

AvtoVAZ and other car makers may agree or opt out, but thereís always Toyota, Nissan, Mitsubishi and Honda; all of which are already customers in Japan.
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