Russian car maker Sollers dropped joint venture plans with Fiat and will instead team up with Ford to make and sell cars and vans in the fast-growing Russian market. Western carmakers are increasingly reliant on emerging markets, particularly the BRIC countries of Brazil, Russia, India and China, to offset stagnating demand at home after the ending of government scrappage schemes.
Ford got off to a slower start than rivals such as General Motors Co in Russia, which is booming after a savage slump during the financial crisis, as government incentives tempt drivers back into showrooms. The Boston Consulting Group said this week Russia will be the sixth-largest global auto market by 2020 with annual sales of 4 million units, up from its current 10th position. Russia will overtake Germany by 2018 as the largest producer of passenger cars and light commercial vehicles in Europe, the consultancy said.
Ford Motor Co, which began production in Russia in 2002, said the 50/50 venture would be called Ford Sollers and would make and distribute Ford cars and light commercial vehicles in Russia. A Ford Europe spokesman declined to give financial details or specify sales or production targets. He did not comment on whether Sollers' termination of Fiat talks was a condition for the new joint venture. Elena Sakhnova, an analyst with Moscow's VTB Capital, said the Ford-Sollers partnership looked far more promising as both already have considerable production capacity in Russia.
"Forming a joint venture with Fiat seemed doubtful from the outset, they wanted to produce too many cars and this would have required them to borrow an excessive amount," she said. She added that Ford and Sollers will have to invest about 800 million euros in order to build the facilities required to satisfy government requirements to source manufacturing locally.
Metropol analyst Andrey Rozhkov called the partnerhship "an excellent choice" and added: "In the first place, Ford is a much more popular brand in Russia than Fiat." The partners signed a memorandum of understanding on a joint venture (JV) expected to begin operations by the end of 2011, which will also produce engines and parts and will establish research and development activities.
The two have already submitted an application to the Russian government to jointly assemble vehicles, which would also allow them to pay reduced customs duties on parts. The Russian government only grants such privileges to firms that agree to build at least 300,000 vehicles per year and localise a significant portion of production.
The joint venture includes Sollers facilities in Russia's Republic of Tatarstan, with the capacity to produce 200,000 vehicles and light trucks per year, as well as a Ford plant in St. Petersburg with a potential capacity of 125,000 units. Fiat and Sollers signed a letter of intent in February 2010 to make cars and sports utility vehicles (SUVs) at a new Russian plant with the aim of producing 500,000 units a year. "Fiat and Sollers have decided to follow independent strategies to develop their presence in Russia. Consequently the parties have agreed to end their talks," the companies said. Fiat intends to go ahead on its own to set up the plant to produce 500,000 vehicles a year and has sufficient funds to do so, a Fiat spokesman said.