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AUTO MARKETS * Russia - Booming Russia offers risks and rewards for automakers
GM, other carmakers find partnerships there a challenge
St. Petersburg,Russia -The Detroit News, by Christine Tierney -May 22, 2008: -- When Renault SA Chief Executive Carlos Ghosn and the owners of Russian automaker OAO AvtoVAZ sealed their $1 billion partnership on Feb. 29, the smiles and warm handshakes evoked a similar scene from just a few years earlier... In 2001, General Motors Corp. CEO Rick Wagoner and a different set of AvtoVAZ bosses also embarked on a project to build vehicles together with high hopes... When it came time to form a full-fledged equity partnership, AvtoVAZ turned to Renault. GM is now in talks with Russia's No. 2 automaker, GAZ, after a bumpy relationship with AvtoVAZ that showed the risks of doing business in Russia. In addition to the dramatic ups and downs and the tedious bureaucracy that characterize emerging economies, corruption is rife, and the Russian government intrudes with a heavy hand in the energy, media, auto and other sectors it considers critical... According to people familiar with the venture, GM suspected AvtoVAZ's affiliated suppliers of inflating their prices, while AvtoVAZ managers grumbled that the venture wasn't making the kind of modern cars they wanted... GM and AvtoVAZ muddled along until December 2005, when events took a bizarre turn: Executives from a Russian state arms exporter run by an ex-KGB colleague of then-President Vladimir Putin descended on AvtoVAZ's Togliatti headquarters with 300 federal police and seized management control. AvtoVAZ executives were as baffled as their GM counterparts and couldn't explain what was happening... But such rough tactics were commonplace in Russia, a country that has lurched from Communism to chaos to a new, undemocratic order in the past two decades. When the powers-that-be want to restructure industries, they can seize assets and arrest businessmen... Seasoned Russia experts assumed that the Kremlin had run out of patience with AvtoVAZ's modernization efforts and effectively renationalized the carmaker by putting in its own people... After the dust settled, GM managers found themselves facing new and openly hostile counterparts. The conflict erupted two months later, in February 2006, when production at the venture was halted for 10 days as GM and AvtoVAZ's bosses argued over what the Russian suppliers should be paid... That summer, after Moscow appointed more conciliatory directors to the venture's board, the partners seemed to have resolved their differences... But the damage was deep. AvtoVAZ already was in talks with Renault... (Russian automakers look for partners as foreign brands dominate their market. Here, a motorist parks his BMW in front of a Hummer on Nevsky Prospect in St. Petersburg) Labels: market news
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