Fiat on Thursday teamed up with Sollers of Russia to produce cars and sports utility vehicles for the Russian market in a joint venture that is supported by the Kremlin and gives a needed boost to the country’s ailing auto industry.
The Italian carmaker’s move represents a significant and potentially risky investment in a market where it has traditionally had a weak presence. Fiat said the joint venture was part of its move to increase its international presence following its acquisition of Chrysler and was one of the largest such ventures it had undertaken outside Italy.
The venture will produce up to 500,000 passenger cars and sports utility vehicles a year by 2016, mainly for the Russian market, with a minimum of 10 per cent of production for export markets. Production will be at a Sollers facility in the city of Naberezhnye Chelny, 1,000km east of Moscow, which will be expanded through new facilities and a technology park for component production.
The two companies said they envisaged investing €2.4bn ($3.3bn) in the new facility, which “will become one of the biggest investment projects in the Russian automotive sector and will include all key aspects of vehicle production with high added value”.
Sergio Marchionne, Fiat’s chief executive, said the venture marked “a turning point for our presence in the Russian market”. A memorandum of understanding was signed on Thursday by Mr Marchionne and Vadim Shevtsov, his Sollers counterpart, at a ceremony attended by Vladimir Putin, the Russian prime minister.
Speaking at the ceremony, Mr Putin said: “The ministry of industry and trade has drafted a request to the Russian government for financial support for the project. We will make a decision as a result of today’s meeting.”
Fiat’s 50 per cent stake in the venture would add a potential 250,000 new cars to its annual production total, which analysts at UniCredit said would “represent around 10 per cent of the total volumes sold by Fiat Auto”.
They said Fiat’s record of joint ventures in emerging markets “has not represented an easy task in the recent past” but the risks could be mitigated by Fiat and Sollers already working together in the Russian market.
Russia was set to overtake Germany as Europe’s biggest car market before the financial crisis, but car sales plunged more than 50 per cent last year as the economy contracted and cheap consumer credit evaporated. Russia has 230 cars per 1,000 people compared with 450 in western Europe. More foreign carmakers are expected to form assembly ventures in Russia to evade high car import duties.
Sollers, formerly known as Severstal-Auto, was founded in 2000 by Severstal, the Russian steel group controlled by Alexei Mordashov. While other Russian carmakers have struggled, Sollers has expanded, using a loan from VEB, the state bank, to build a new plant to assemble foreign cars in Vladivostok that opened last December.
Sollers builds Uaz sports utility vehicles and assembles cars for Fiat and Ssangyong, the South Korean carmaker, at plants in European Russia. Mr Shevtsov bought Severstal-Auto in 2007.
Shares in Fiat traded about 2 per cent lower on Thursday, while shares in Sollers rose 4.5 per cent.
The Italian carmaker’s move represents a significant and potentially risky investment in a market where it has traditionally had a weak presence. Fiat said the joint venture was part of its move to increase its international presence following its acquisition of Chrysler and was one of the largest such ventures it had undertaken outside Italy.
The venture will produce up to 500,000 passenger cars and sports utility vehicles a year by 2016, mainly for the Russian market, with a minimum of 10 per cent of production for export markets. Production will be at a Sollers facility in the city of Naberezhnye Chelny, 1,000km east of Moscow, which will be expanded through new facilities and a technology park for component production.
The two companies said they envisaged investing €2.4bn ($3.3bn) in the new facility, which “will become one of the biggest investment projects in the Russian automotive sector and will include all key aspects of vehicle production with high added value”.
Sergio Marchionne, Fiat’s chief executive, said the venture marked “a turning point for our presence in the Russian market”. A memorandum of understanding was signed on Thursday by Mr Marchionne and Vadim Shevtsov, his Sollers counterpart, at a ceremony attended by Vladimir Putin, the Russian prime minister.
Speaking at the ceremony, Mr Putin said: “The ministry of industry and trade has drafted a request to the Russian government for financial support for the project. We will make a decision as a result of today’s meeting.”
Fiat’s 50 per cent stake in the venture would add a potential 250,000 new cars to its annual production total, which analysts at UniCredit said would “represent around 10 per cent of the total volumes sold by Fiat Auto”.
They said Fiat’s record of joint ventures in emerging markets “has not represented an easy task in the recent past” but the risks could be mitigated by Fiat and Sollers already working together in the Russian market.
Russia was set to overtake Germany as Europe’s biggest car market before the financial crisis, but car sales plunged more than 50 per cent last year as the economy contracted and cheap consumer credit evaporated. Russia has 230 cars per 1,000 people compared with 450 in western Europe. More foreign carmakers are expected to form assembly ventures in Russia to evade high car import duties.
Sollers, formerly known as Severstal-Auto, was founded in 2000 by Severstal, the Russian steel group controlled by Alexei Mordashov. While other Russian carmakers have struggled, Sollers has expanded, using a loan from VEB, the state bank, to build a new plant to assemble foreign cars in Vladivostok that opened last December.
Sollers builds Uaz sports utility vehicles and assembles cars for Fiat and Ssangyong, the South Korean carmaker, at plants in European Russia. Mr Shevtsov bought Severstal-Auto in 2007.
Shares in Fiat traded about 2 per cent lower on Thursday, while shares in Sollers rose 4.5 per cent.
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