As its partnership with Russia's largest automaker, AvtoVAZ, cools, General Motors has found another way to get its cars into the country.
Ukrainian automaker AvtoZAZ builds the Chevrolet Lanos from kits and ships them duty-free into Russia.
GM and AvtoZAZ are tailoring the GM Daewoo-designed cars to have just enough Ukrainian content to qualify for lower taxes under a Russian-Ukrainian trade agreement. The kits are welded and painted by AvtoZAZ in Zaporoyhze, in the eastern Ukraine.
Many engine parts are made in Korea. But AvtoZAZ assembles the engines using those parts plus radiators and other parts made in the Ukraine. Some parts are built by AvtoZAZ subsidiary FSO in Poland.
By not having to pay a 25 percent import tariff, GM can position the lower-medium Lanos in a growing gap above the low-price entries from AvtoVAZ and below imports from Hyundai and Toyota.
GM plans to sell 25,000 Lanos cars in 2006 and boost its total Chevrolet sales in Russia to 60,000. Lanos sales started in November through the Chevrolet dealer network in Russia.
"It allows Chevrolet to have a notchback vehicle entry in a lower price segment (under $9,000), which is a very significant and important segment of the Russian market," said Chris Lacey, GM executive director for north, central and eastern Europe.
The Lanos will be priced just above the new AvtoZAZ Kalina and just below the expected pricing of the Dacia Logan.
Analysts say GM's Russian effort is finally starting to work.
"I think there would be a market for the Lanos in Russia, at least for a few years," said Global Insight analyst Tim Armstrong. "With the right distribution, sales would be about 20,000 to 30,000."
The Lanos comes at a critical time. GM-AvtoVAZ, the joint venture between GM and AvtoVAZ, is operating under its 75,000-unit capacity.
The joint venture's factory in Togliatti, Russia, makes the Chevrolet Niva SUV and the Viva, a rebadged, old-generation Opel sedan.
Sales of the Niva faltered last year, down 12.6 percent to 29,065 units through August, according to the latest data available from JATO Dynamics, a market researcher in the United Kingdom.