Chrysler weighs deal to build cars in Russia

Such a project would allow Chrysler to tap into the rapid growth in Russian car and truck sales without making a huge investment, said sources familiar with the negotiations. The discussions between GAZ President Leonid Dolgov, Chrysler President Tom LaSorda and other officials at Chrysler’s Auburn Hills headquarters illustrate the profound changes taking place in the industry, where ambitious companies from emerging markets are forming ties with struggling old-line automakers.

GAZ, part of a group owned by Oleg Deripaska, a tycoon close to Russian President Vladimir Putin, is seeking access to North American auto technology and know-how. GAZ bought a $1.54 billion stake in Canadian auto supplier Magna International Inc. in May. Over the next five years, it plans to invest $1.25 billion in the United States. Michigan Gov. Jennifer Granholm also is scheduled to meet GAZ President Dolgov today to press for some of the investment, her office confirmed. „If GAZ is going to invest $1.5 billion in the United States over the next five years, we want that investment here in Michigan,” Granholm spokeswoman Liz Boyd said. „The governor is going to take every opportunity to fight for investment and jobs in this state.” The US auto industry’s deep difficulties were one of the factors behind Stuttgart, Germany-based Daimler AG’s decision this year to dissolve the nine-year DaimlerChrysler merger and sell Chrysler to Cerberus Capital Management LP.

Seeking overseas growth
Newly private Chrysler, now heavily reliant on the US market for its revenues, is moving to expand abroad. It has entered into an agreement with China’s Chery Automobile Co. to produce small cars in China for Chrysler. But Chrysler officials recently said that Chery does not yet have a vehicle that meets the US automaker’s standards. Chrysler officials declined to comment on the talks with GAZ but said the two companies already do some business together. Chrysler sells four-cylinder, 2.4-liter engines to GAZ, and it sold the Russian firm the tooling to make the previous-generation Sebring sedan, which GAZ will produce in Russia.

In addition, GAZ’s partner, Magna, is Chrysler’s biggest supplier. Both companies were interested in Chrysler during the auction of the US automaker earlier this year. Cerberus officials were not available Wednesday to comment on whether GAZ has expressed a more recent interest to invest in Chrysler. The Auburn Hills automaker has boosted sales abroad, but still relies on North America for more than 85% of its revenue. GM, Ford benefit in Russia By comparison, General Motors Corp. and Ford Motor Co. have much larger operations overseas, including in Russia, and they have benefited from a recent surge in the Russian market fueled by high energy prices and an improving economy.

Russian car sales are growing at a 25% annual rate. Investment firm Merrill Lynch expects Russia to be Europe’s second- or third-largest car market by the end of this year, with car sales exceeding 2.2 million vehicles, and combined car and truck sales reaching 2.5 million vehicles. „Russian volume growth mainly benefited foreign carmakers - up 62% in unit sales in the first nine months of 2007 - as Russians continued to move away from local brands,” Merrill Lynch said in a report issued last month.

Russian car sales profitable
By contrast with the auto business in many emerging markets, car sales in Russia are highly profitable. But high tariffs are imposed on imported cars, which is why so many global automakers are scrambling to set up local production in Russia. Among the models Chrysler might seek to produce locally is the Jeep Grand Cherokee SUV. GAZ, a former state-owned firm established in 1930 and acquired in 2000 by Deripaska, is one of the manufacturers feeling the pressure from the Russian consumers’ shift to foreign brands.Its factories in Nizhny Novgorod, about 250 miles southeast of Moscow, turn out vehicles such as the relatively basic but easy-to-repair Volga midsize car starting at around $8,000. In recent years, however, Volga sales have languished and GAZ’s market share has fallen to 9% from 13% in 2001. GAZ is relying on assistance from Magna technicians to set up production of the Sebring, called the Sibir in Russia, to drive up sales. (detnews.com)