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Risky business

Three Western automakers have adopted sharply contrasting strategies for assembling vehicles in Russia.

Renault SA formed an alliance with local government. General Motors formed a joint venture with a Russian carmaker. Ford Motor Co. is going it alone.

Who is right? It is too early to tell. Next year, all three will be producing vehicles, and some of those cars will be exported to Western Europe and Asia.

General Motors is counting on partner AvtoVAZ - producer of the Lada sedan - to build a sport-utility that is cheap enough to sell in Russia. The AvtoVAZ plant in Togliatti will assemble the vehicle, which will be called the Chevrolet Niva. The partners will build 75,000 Nivas a year, of which 35,000 will be sold in Russia and most of the rest in Western Europe.

RUSSIAN ENGINEERS

To cut costs, General Motors will use Russian engineers and all components will be made in Russia. GM considers AvtoVAZ's engineers to be a key advantage, says David Herman, president of GM CIS.

Russian engineers are skilled, and because they are paid prevailing Russian wages, they are a bargain. GM Europe already has certified its Russian partner as a provider of engineering services, including electronics and cold-weather testing.

'There is a shortage of electrical engineers in Germany, and there are a lot of well-qualified Russians who can fill the gap,' Herman says. 'This sort of exchange is an integral part of our joint venture. We are bringing technical knowledge and improvements, but we are not dealing with a Third World country here.'

The Niva's off-road ability is well-known. The vehicle's poor road handling and obsolete emissions controls killed its appeal in export markets. This will change, Herman says. GM will improve the Niva's ride and handling. The automaker will upgrade the vehicle's quality, and will supply powertrains for export versions. Outside Russia, customers will have a choice of Fiat's 1.9-liter diesel engine, or Opel's 1.6- and 1.8-liter gasoline engines. These powertrains will be available in Russia for a price premium.

EXPORT MARKETS

General Motors might sell the Niva through Daewoo Motor Co.'s dealer network, if GM buys the Korean automaker. The Niva would be particularly well suited for southern Europe, Germany and the United Kingdom. 'Daewoo is one possibility,' says Herman. 'But it depends on GM's negotiations with the South Koreans. Another possibility is reviving the old Lada network and badge in Western Europe.'

Herman thinks the Niva's potential stretches beyond Russia and Europe. 'There could be the opportunity in other markets such as India, China, Indonesia and South America,' he says. In those markets, the partners might set up complete knockdown plants to avoid tariffs.

NICHE VEHICLE

Meanwhile, Ford is preparing to launch production of its Focus world car at a new assembly plant in St. Petersburg. The automaker did not line up a Russian partner to help manage the project. Ford's solo act allows it to maintain tight control over production and quality.

On the other hand, it does not get access to cheap Russian engineers. That does not appear to be a big issue for Ford, which does not plan to offer an entry-level car in Russia. Instead, Ford will aim at a smaller, upscale market with the Focus. And its assembly plant's low initial production capacity reflects Ford's relatively modest short-term sales targets.

The St. Petersburg plant initially will produce up to 25,000 vehicles a year; complete knockdown production will begin in April.

Ford has completed the paint shop and body shop, and the final assembly line is nearly ready. The plant is designed to offer maximum flexibility, says Henrik Nenzen, president of Ford of Russia. Ford can easily expand the plant, which can assemble as many as five different models. Future models are likely to include a sport-utility and the Transit commercial van.

The Focus will have 50 percent local content within five years. Ford is seeking suppliers of seats, trim, suspensions, wheels and glass. Nenzen says that with their low labor costs, engineering skills and cheap, plentiful energy, Russian suppliers eventually will compete with established European suppliers.

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