North West | Industry, manufacturing

Sollers leaves Fiat at the altar and announces new marriage with Ford

21 Feb '11
Oleg Kouzbit, Online News Managing Editor

In a move that surprised car market pundits, Ford and Russia’s Sollers announced last Friday their prospective JV to promote and make Ford cars in Russia. The news ended year-long speculation about Sollers’ JV plans with Fiat backed by the RF government. With the help of the RF’s newly-born Industrial Assembly policy framework, Ford is hoping to “build the Ford brand in Russia and create a profitably growing business” while Sollers is considering challenging AvtoVAZ’s dominance in the domestic car market.

Ford and Tatarstan-based Sollers, Russia’s second largest producer of passenger and light commercial vehicles, inked an MOU Friday to set up a 50/50 owned auto-making JV in the RF. The announcement came hours after Sollers’ surprising break-up with Italy’s Fiat. In early 2010, the widely touted $3+bn marriage looked a sure deal and was personally championed by RF Prime Minister Putin.

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 firm reported 2010 sales of 98,000 vehicles.

Ford was the first international car manufacturer in 2002 to start producing autos in Russia. Its plant in the Leningrad region’s town of Vsevolozhsk makes the Focus and Mondeo models.

The financial terms of the deal haven’t been specified yet, nor has the planned capacity of the prospective joint venture (the parties declined to disclose details when approached Friday). It has been announced, however, that the new project, to be called Ford Sollers, is expected to start operation by the end of this year.

The JV will reportedly build a Ford family of passenger and light commercial automobiles (specific models to still be specified) and promote the Ford brand Russia-wide through a distributors network, the partners said. On top of that, Ford Sollers will reportedly do extensive R&D, churn out car engines, and set up pressroom operations to boost component production and further localize Ford manufacturing in Russia.

Its production sites will include both Ford’s Vsevolozhsk factory outside St. Petersburg and Sollers’ premises in the Alabuga special economic zone, Tatarstan.

‘The divorcees’

The breaking news came as a complete surprise to all proponents of Sollers’ long-awaited and seemingly iron-clad $3+bn JV agreement with Italy’s Fiat. It was reached in February 2010 as the second go at the two companies’ JV efforts in Russia (the first one was a $400+m deal in mid-2008 in the Nizhny Novgorod region, evaporated with the global financial crisis) and was viewed by most experts as a done deal.

The partners were supposed to put up technology and manufacturing space worth over $400m. The JV’s stated goal was to start from an annual capacity of 300,000 cars and then step up by 2016 to produce up to 500,000 Fiat, Chrysler, Jeep and UAZ vehicles a year.

Prime Minister Vladimir Putin was so enthused with the prospects that he personally pledged a $2.89bn government loan that wouldn’t have to be repaid until 2025—an unusually long term. With the auto industry officially declared a priority in Russia’s effort to shrug off the debilitating effects of the global melt-down analysts were positive the loan was a clear signal that the Kremlin would cushion the project against any adversities.

Friday’s statement that the Italian and Russian firms “have come to mutual understanding regarding the separate implementation of their long-term strategies in the Russian market” came as an about-face from the commitments aired a year ago. Neither has been available for official comment about the reasons for the ‘divorce’.

Turin-based Fiat lost about $1.3bn in Europe last year, Bloomberg reported. With the Russian JV in mind the firm reportedly targeted sales of 280,000 cars in Russia by 2014—a plan that Fiat is now unlikely to pull off on its own.

With Fiat, Sollers had plans to eventually match AvtoVAZ’s 20% of the Russian car market. Analysts feel the fast-growing runner-up will set the same goal in its new JV.

The RF’s green light

To ensure favorable conditions for their future JV the new partners have reportedly submitted a joint application to the Russian government for participation in the new Industrial Assembly policy framework that is taking effect this month.

Ford of Europe’s CEO and chairman, Stephen Odell, was quoted by Prime-TASS as saying, “The benefits provided by the proposed joint venture and the new Industrial Assembly policy will be key enablers to build the Ford brand in Russia and create a profitably growing business. It also will help to strengthen the Russian automotive industry and its local supply base.”

The new policy grants a foreign auto maker duty-free imports of vehicle parts into Russia on condition that it undertakes to localize up to 60% of its auto component production (also purportedly limiting the number of SKD kits that any one automaker can assemble in a year). In exchange for the largess the RF expects from each maker at least $750m worth of new production sites and at least $500m upgrades of existing ones to be initiated in Russia.

A minimal production capacity for a manufacturer to be eligible for the benefit is now 300,000 vehicles a year—a sharp increase from 25,000 in force before.

As the new rules were being finalized and details leaked to press some international brands found the cons outweighing the pros. The makers like Renault-Nissan, Toyota and Ford are now changing perceptions and hail the opportunity to gain a foothold in what European analysts feel is a promising market in Europe.

The above terms and conditions will only benefit those applying for the new policy by March 1, 2011—the deadline firmly set as part of Russia’s WTO accession commitment. So, Ford and Sollers seem to have jumped the last train.

A ‘Detroit derby’

Despite Ford’s weak Western Europe sales in January the company’s Russian results skyrocketed by 24% y/y to 3,629 cars, the Association of European Businesses in Russia (AEB) reported—still a slower growth rate compared to GM that is said to have sold in the RF almost three times as many vehicles in January. With the new JV deal Ford hopes to contest its Detroit neighbor.

The company has yet to clarify how the JV will affect its 2011 plan for the Vsevolozhsk site, which just days ago called for production of 90-100,000 cars, including the third-generation Focus and the new Mondeo.
Publish in Twitter
Write to Facebook
Google Buzz
Write to LiveJournal
Show in MM
Share MK
Find Related Content
Latest News: North West
22 Jun '22 | Technology & innovation
20 Jun '22 | Materials, extraction | Technology & innovation
16 Jun '22 | Technology & innovation
15 Jun '22 | Technology & innovation

Feature stories

25 May '22
From enhancing the properties of existing materials...
29 Apr '22
Scientists in St. Petersburg have come up with a new...
2 Mar '22
Scientists in Dubna have developed what they refer to...
Search (News archive - 22990)
Technology Scouting Solutions For Industry
Marchmont News

Latest News

27 Jun '22
Siberian scientists have developed new hybrid...
24 Jun '22
A new device, developed by a Russian start-up and...
22 Jun '22
Russian researchers have come up with a new Si...

Most read stories from last week

27 Jun '22
Siberian scientists have developed new hybrid...