MOSCOW -- When AvtoVAZ board members meet Friday to pick a strategic partner, the choice will not be easy.
The three foreign carmakers and one supplier thought to be on the list to take a minority stake in Russia's No. 1 automaker are already active in Russia.
Italian automaker Fiat designed and built AvtoVAZ's huge production center headquarters in the 1960s in Togliatti, 800km east of Moscow. General Motors already has a joint venture with AvtoVAZ to build cars in Togliatti. Thursday, a GM spokesman confirmed only that the automaker has made a bid for equity in AvtoVAZ.
Canadian-based supplier Magna and AvtoVAZ worked together to jointly design a new auto plant, though that project has ended. French automaker Renault runs a plant in Moscow and has been looking for another Russian partner to build its emerging-market car, the Logan.
Sergei Chemezov, AvtoVAZ board chairman and Russian President Vladimir Putin's close ally, will chair Friday's board meeting. It comes two years after a team of state directors had arrived in Togliatti, charged with the ambitious task of turning around the country's largest but troubled carmaker.
That AvtoVAZ is prepared to sell a minority stake to a foreign company is a sharp turnaround. In 2005, AvtoVAZ's new leaders, who came from state arms trader Rosoboronexport, said cooperation with foreign partners would be strictly limited to parts and equipment -- and that selling out to a foreign company and giving away the country's lucrative car market -- was out of the question.
"It's a big change from five years ago," said Stanley Root, partner and automotive analyst with PricewaterhouseCoopers in Moscow.
The automaker's new stance comes after its hopes that the government would give several billion dollars to rescue it from foreign competition have been crushed. And after a series of senior managers have been replaced.
The foreign bidders' desire for more access to Russia's booming market is apparent. They are bidding on a company with an opaque ownership structure, a melting market share and questionable corporate governance.
"Nearly all global carmakers are struggling in an intensely competitive global market so alliances are common practice and can be absolutely critical for survival," said analyst Root.
Joint ventures are difficult and the cultural gaps here will make the future relationships hard, analysts say.
General Motors knows this firsthand. Its six-year partnership with AvtoVAZ has been marked by a series of pricing disputes. But GM spokesman Marc Kempe said the company had known its partner for years now and feels "comfortable" about strengthening ties further.
Some believe GM to be the frontrunner. The companies have a joint venture and expanding the relationship would seem to be an easy move. Analysts also note that compared to companies like Fiat, GM has a better brand recognition here and abroad.
"GM in global terms is a much bigger name," said Tony Thompson, head of advisory at KPMG's Moscow office.
But analysts and insiders say AvtoVAZ is unhappy with GM and during the pricing dispute AvtoVAZ even offered to buy GM's stake in the venture.
Others say Fiat will win, if only because it has the longest relationship of anyone with AvtoVAZ. Forty years ago, Fiat built the Togliatti plant and Fiat models were the basis for the first vehicles produced there.
What really counts is that Fiat is offering better conditions than Renault, said one source, who added he had seen both Fiat and Renault proposals, though not from GM.
"[Fiat's bid] is a serious proposal and very interesting to consider," said the source.
Fiat spokesman Giulio Bonazzola said industrial cooperation with AvtoVAZ "could entail the sharing of platforms and engines to be used on vehicles that will bear their brand."
Renault originally offered to build cars under its own brand, the source said.
Of all the bidders, AvtoVAZ seems to have been in talks the longest with Renault, but analysts doubt it will win.
"Conditions of the proposals were changing," the source said of the Renault proposal. "Initially, they were not acceptable at all," he said, adding they later improved.