Fiat comes back after an unsuccessful attempt two years ago to buy a blocking share in AvtoVAZ. Seven years from now it will have a similar enterprise, with money for its construction to be put up by VEB.
Fiat President Sergio Marchionne and Sollers Director General Vadim Shvetsov signed a memorandum yesterday creating a new JV (on a fifty-fifty basis) in the presence of Prime Minister Vladimir Putin. The JV will produce cars on Fiat and Chrysler platforms. Initially it will build 300,000 cars a year (production to be launched in about two years), but will increase capacity to 500,000 by 2016.
All in all, nine class C and D models as well as off-roaders and crossovers will be produced. They will be built on an entirely new platform tentatively called "Compact Wide" being developed by Fiat and Chrysler, which Fiat bought last year, Sollers Deputy Director General Nikolai Sobolev told Vedomosti. This intellectual property, valued at 150 million euros, is Fiat's contribution to the JV. A similar value has been put on the production capacity of the Sollers-Naberezhnye Chelny plant (750,000 cars a year) and the Zavolzhsky motor plant, which will form Sollers' contribution. The cars will be produced under foreign brands.
Even before the project is launched, the partners will start producing the Fiat Linea at Naberezhnye Chelny and later, Chrysler Jeep production will be launched, Interfax quoted Shvetsov as saying.
Total investment in the project will amount to 2.4 billion euros (including production expansion, R&D and localisation of engine and transmission production). The bulk of the money, 2.1 billion euros, will be provided by the state. The government will study the option of granting the JV a 15-year credit, Putin said yesterday. The decision was made after a meeting held after the agreement was signed. Neither Putin nor Shvetsov revealed who will provide the money. The owner of Sollers merely said that the state bank concerned may become a minority shareholder in the project.
Present in Naberezhnye Chelny were the heads of two state banks, VEB's Vladimir Dmitriyev and VTB's Andrey Kostin. VEB is considering taking part in financing the project, the state corporation's spokesman said, and Vedomosti's sources at the Finance Ministry and VEB talk as if it were a foregone conclusion. VTB may also pitch in, one of the sources said, but that is still to be decided. A source close to VTB said that the bank was planning to finance the JV, but the bank's spokesman did not reply to the query.
For VEB, 2.1 billion euros is no small sum. The bank will provide its own money or borrow it in the market, but it will certainly not be money from the National Welfare Fund, a Finance Ministry source assured us.
Our sources do not disclose what VEB's share in the JV may be, saying it is currently under discussion.
For Sollers, the creation of the JV will provide access to state-of-the-art technologies in its key segment of off-road vehicles. Sobolev says it will enable it to localise components for the production of Fiat Ducato in Tatarstan and stimulate development of the dealership network.
Fiat stands more to gain, says VTB Capital analyst Yelena Sakhnova. Marchionne has long promised that the Italian company, which has fared better during the crisis than most (Fiat sales of cars and commercial vehicles dropped by a mere 7.6% in nine months in 2009), will expand into the external markets with the help of its partners, said the director of the Russian A.T. Kearney office Yevgeny Bogdanov.
To date Fiat has been unable to launch a truly major project in Russia. It tried to put a foot in the door in 2007 by buying a 25% stake in AvtoVAZ. At the time the shareholders of the Togliatti plant chose Renault.
Fiat does not regret it. The French paid $1 billion for entering the market and now report losses from their stake in AvtoVAZ, while the Russian government wants it to make further investment. Fiat will get an entry ticket to the Russian market almost free of charge, and with government support into the bargain. It will save not only its own money, but the time it would have spent to build a new plant, Sakhnova notes. The sum of 2.1 billion euros will be borrowed by the JV, so that the money will not be consolidated in the books of Fiat and Sollers.
True, Fiat and Sollers so far have no chance to overtake Renault and AvtoVAZ. By 2016, when the JV will reach design capacity, the Russian market will be about 3.5 million cars, Sakhnova says. So the JV's share may be 12% while AvtoVAZ, counting in Renault projects, will have a 20% share, she notes. But AvtoVAZ is historically the largest car producer in Russia whereas Sollers is starting from scratch in this segment. Last year its market share was about 4% and Fiat's just 1.2% (according to AEB). A12% market share is not so bad, and in addition AvtoVAZ's future is still unclear, Sakhnova concludes.
Yevgeniya Pismennaya, Yulia Fedorinova