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Wednesday, 27 June, 2001, 14:24 GMT 15:24 UK
General Motors signs Russia car deal
An AvtoVAZ Lada car breaks down in Moscow
The GM deal may get Lada going again
After years of hesitation, US carmaker General Motors (GM) has signed a deal to invest in the Russian auto industry.

GM will enter into a joint venture with AvtoVAZ, Russia's biggest carmaker and the manufacturer of the Lada, with support from the European Bank for Reconstruction & Development (EBRD).

The EBRD and GM will invest $240m (170m) in equity and loans in the project, which will be managed jointly by GM and AvtoVAZ.

A traffic jam in Moscow
Russia produces too many cars
The deal should safeguard production of the Lada, a car whose shaky reputation has all but eliminated its export market since the collapse of communism.

From next year, GM plans to produce an upgraded version of the Lada Niva four-wheel-drive at AvtoVAZ's plant beside the Volga river.

The venture is targeting maximum output of 75,000 vehicles a year, roughly 10% of AvtoVAZ's annual capacity.

This should enable AvtoVAZ to continue producing its existing range of models.

Tentative talks

GM and AvtoVAZ have been discussing a joint venture on and off since the mid-1990s.

But discussions have been hampered by disagreements over management control.

Finance for the project was also held up by the Russian economic crisis of 1998-99.

Last year, AvtoVAZ was under investigation for alleged tax evasion and other offences, part of a Kremlin drive against powerful business interests.

The investigation has since been dropped.

Dangerous market

Some foreign carmakers have prospered by acquiring or launching joint ventures with East European manufacturers.

The main success story has been Czech Skoda, along with Lada Eastern Europe's best-known automotive brand, which was acquired by Volkswagen in 1991.

But the Russian market has proved more problematic.

France's Renault and US Ford, among others, have projects under way in Russia, but no foreign firm has yet agreed to commit the sort of funds involved in the GM-AvtoVAZ deal.

The Russian government has been slow to grant foreign investors access to its automotive industry.

And international carmakers worry that Russian firms will require massive investment if they are ever to produce vehicles up to international standards.

The export market for AvtoVAZ and its rivals has collapsed since the fall of communism.

And although almost all Russians drive locally made cars, they only do so because trade barriers make them far cheaper than imported brands.

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See also:

27 Feb 01 | Business
GM to build sporty Lada
24 Feb 00 | UK
Skoda has last laugh
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