There is plenty of bitter irony to be found in Fiat's latest failure in Russia. The automaker, which essentially created the Russian automotive industry 45 years ago by founding AvtoVAZ and building the huge Togliatti assembly plant, has missed out once again in an attempt to find a partner to build cars with in the huge country.
The latest rejection comes from Sollers Group, the former Severstal-Auto, which builds small batches of cars and LCVs under contract for several automakers. On Feb. 18, the Russian automaker backed out of a plan to form a 2.8-billion-euro (about $3.85 billion) joint venture with Fiat to build as many as 500,000 cars and SUVs a year in favor of setting up a similar venture with Ford Motor Co.
Fiat has since filed a formal memorandum of understanding with Russian officials to go it alone. The company now says it intends to build a 300,000-unit plant at an undetermined location to produce Fiat- and Jeep-brand medium and large sedans, SUVs and LCVs.
The aborted deal with Sollers is the latest in a long string of failures for Fiat in Russia, where the company and four CEOs over 20 years have signed memoranda of understanding with almost everyone -- only to wind up going solo.
Fiat has made several attempts over the past 10 years to hook up again with AvtoVAZ, Russia's largest automaker. Although the Fiat 124 has been the basis of AvtoVAZ's Lada brand since the company was created by Fiat in 1966, the Italian automaker was pushed aside three years ago by Renault SA, which has taken a 25 percent stake in the Russian company.
In 1989, then-Soviet Premier Mikhail Gorbachev wanted to build a 1-million-units-a-year "new" AvtoVAZ and Fiat was selected as the partner. A $1.3 billion memorandum of understanding was signed, but the deal fell apart with the collapse of the Soviet Union.
In 2003, Fiat signed a letter of intent with rival AvtoGAZ after a joint venture the two companies had established in 1997 never blossomed. The 1997 plan envisioned building an $850 million greenfield plant capable of building 150,000 units a year.
The 2003 plan with privately-owned AvtoGAZ also went nowhere. In 2008, Fiat signed two joint ventures with Sollers, including the primary one just lost to Ford. Another smaller venture remains in force and will continue assembling Linea compact sedans and Doblo and Ducato LCVs for the domestic market.
Russia remains a true headache for CEO Sergio Marchionne. Fiat sales in Russia grew 21 percent last year to a mere 21,943 units, underperforming an overall market up 30 percent to 1.91 million units.
But the Russian market is expected to be a stellar performer in coming years, and Fiat desperately needs to regain lost ground there. The Boston Consulting Group, one of several firms bullish on the country, expects the Russian car market to become the world's sixth-largest by 2020 on sales of 4 million units a year.
In coming weeks, Fiat is expected to announce where in Russia it will build its proposed plant and how much it will invest. In the meantime, Volkswagen has signed an agreement to produce more than 100,000 Volkswagen and Skoda cars a year in a joint venture with AvtoGAZ while General Motors Co. and Avtotor are reported to be near an agreement to jointly produce at least 300,000 cars per year.