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News

12.01.2006

Output at General Motors' joint venture in Russia has been halted since last Monday, the world's biggest carmaker by volume said Friday amid media reports of a clash with its partner, AvtoVAZ.

Production has stopped at GM AvtoVAZ. Nothing has been built down there since Monday," a GM Europe spokesman said.

Russian newspapers said AvtoVAZ had stopped delivering parts to the venture's plant in Tolyatti, but the GM spokesman declined to go into the reasons for the stoppage.

We are doing everything to resume production as quickly as possible," he said, adding that it was unclear when this might happen.

An AvtoVAZ spokesman in Russia declined to comment and said the company would issue a statement no earlier than Monday after holding a board meeting.

AvtoVAZ has taken a more assertive stance with GM since state arms exporter Rosoboronexport installed new management at the automaker, which sold 720,000 cars last year.

AvtoVAZ, which has long struggled to lift sales of its cheap but clunky Lada models, announced this month that it would build a new state-funded car plant and might close the joint venture with GM.

The strategy shift comes as Russia seeks to create an auto industry champion to meet the challenge of foreign rivals, whose sales of imported and locally assembled cars are booming.

Vedomosti, quoting a source close to AvtoVAZ management, said AvtoVAZ was losing money by supplying car kits to the venture at 15 percent below cost. That amounted to losing $20 million per year, given an annual output of 50,000 cars.

Russia in April reduced tariffs on key car parts to entice foreign automakers and parts suppliers, such as Toyota, DaimlerChrysler and Johnson Controls, to build factories in the country.

Russian media quoted car industry analysts as saying that Rosoboronexport was seeking to squeeze GM out of the venture and take control of the plant, which can make as many as 100,000 cars per year.

AvtoVAZ's conflict with GM may end up in AvtoVAZ buying out the Americans' share," Vedomosti quoted UFG analyst Yelena Sakhnova and Metropol's Alexander Zhukov as saying.

The Tolyatti plant, in the Samara region, builds 50,000 Chevrolet Niva sport utility vehicles and Viva sedans per year. AvtoVAZ and GM each own 41.5 percent of the venture, while the European Bank for Reconstruction and Development owns the remaining 17 percent.

GM has used the venture to fuel sales growth and win market share in Russia since 2002, as sales stagnate or decline in Europe and the U.S.

The U.S. giant in 2004 also started making Hummer H2 sport utility vehicles in Kaliningrad with partner Avtotor.

GM says Chevrolet is now the biggest foreign brand in Russia behind South Korea's Hyundai Motor. GM also imports Korean-made Chevrolets into Russia, but the joint-venture plant still accounts for the bulk of GM models sold there, the spokesman said.

Sales in Russia of the Chevy Niva and Viva models fell by 14 percent last year to 46,000, industry figures show.

Annual car sales in Russia are expected to almost double to about 2.8 million units by 2010, according to brokerage Troika Dialog.

(Reuters, Bloomberg)

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