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First Chevy-Niva Rolls Out of Tolyatti

Combined Reports

Maxim Marmur / AP

Russian Orthodox priests preparing to bless the assembly line pumping out the new GM-AvtoVAZ SUVs, priced to sell at ,000.


TOLYATTI, Central Russia -- General Motors and AvtoVAZ launched the biggest combined project by Russian and global carmakers on Monday, officially beginning production of the Chevrolet-Niva sports utility vehicle.

"We want to see the Tolyatti plant produce high-quality vehicles and become as efficient as any GM facility in the world," GM chairman John Smith said as he unveiled the new production facility at the giant AvtoVAZ plant some 1,000 kilometers southeast of Moscow.

AvtoVAZ chairman Vladimir Kadannikov said the million project brings the integration of Russia into the world auto industry closer.

A revamped version of the AvtoVAZ Niva -- in production since 1977 and a familiar sight on Russian roads -- the new vehicle will sport the Chevrolet badge on a body that is 98 percent Russian-made. It will be sold at AvtoVAZ dealerships in Russia and GM dealerships abroad, including Europe, the Middle East, Asia and Latin America. There are no plans, however, to export the vehicle to the United States or Canada.

Under the deal, AvtoVAZ provided facilities, equipment and know-how while GM contributed mostly cash and some equipment. GM and AvtoVAZ each get a 41.5 percent stake in the joint venture -- worth .1 million each -- and the European Bank for Reconstruction and Development owns the remaining 17 percent of stock, worth million. The bank is providing an additional million in loans.

The least expensive Chevy-Niva will cost about ,000, significantly less than the cheapest imported SUV, the KIA Sport, which starts at ,000. Another version -- quieter and powered with a European engine -- will cost significantly more. Engineers from Opel, GM's German subsidiary, have helped AvtoVAZ refine the initial prototype.

The joint venture, which will employ 1,200 people, is set to reach a full capacity of 75,000 cars per year -- or 10 percent of AvtoVAZ's current output -- by 2005. For the first full year of operation, it plans to produce 35,000 vehicles.

The government hopes the project will also help direct much-needed investment to the Russian auto parts industry, which desperately needs upgrading.

Many Western automakers have hungrily looked to Russia, one of the few countries in the world with annual car sales exceeding 1 million vehicles.

"We believe Russia is one of the six most promising emerging world markets for auto vehicles," Smith said at the opening ceremony, adding at a later news conference that the country is seen as "one of the greatest growth markets for the next 10 to 20 years."

Dow Jones reported Kadannikov as saying the Russian market should quickly grow from the current 1.3 million units per year to 1.6 million.

The project is not without its headaches. Last month, Chevy-Niva general director John Mylonas said the quality of parts delivered to the plant was a major concern with as much as 20 percent arriving defective.

But a Chevy-Niva employee claimed the situation is actually worse. The employee, who works in quality control and asked not to be identified, said 99 percent of parts do not fit or are damaged and have to be sent back to the supplier.

The project is only the second investment by a major automaker in the local car industry. Ford Motor Co. opened a million assembly plant in Vsevolozhsk near St. Petersburg in July.