U.S. Blazers Made in Russia

01/03/97

Russian Prime Minister Viktor Chernomyrdin told workers in the semi-autonomous Russian region of Tatarstan, "This is a victory -- I cannot call it anything else." Chernomyrdin was speaking to and about the men and women who will assemble up to 10,000 Chevrolet Blazer sport utility vehicles from imported parts this year.

General Motors will oversee the Russian Blazer production through Yelaz-GM, its $250 million joint venture with a state-owned Russian carmaker. GM has management control of the venture and owns a 25 percent equity stake in it. The Russian and Tatar government share a 75 percent stake in the venture. GM expects a full-scale assembly line, with an annual capacity for 45,000 vehicles, to begin work by the end of 1998.

GM's competition to produce Western-style cars in Russia comes from Kia Motors of South Korea and Volkswagen's Skoda unit, both of which plan to start Russian assembly lines next year. Industry analysts expect the Russian carmarket to boom, with new car sales forecast to grow to 1 to 2 million a year by the turn of the century. DRI/McGraw-Hill estimates this year's new car sales at just under 700,000.

Presidential Chief of Staff Anatoly Chubais said the cars should be a model for Russian industry. He pointed to the back of the first car off the line as Chernomyrdin took it for a spin and jokingly said, "the license plate should say 'primer' (textbook), not 'premier.'"

Russian manufacturers have been trying to attract foreign investment from companies such as GM and Fiat for years, but until now none accepted the challenge of working with existing Russian auto plants, which have been considered overstaffed, poorly financed, and low-quality producers.

The oil-rich Tatar republic will finance construction of the Blazer plant with money made on tax-exempt sales of crude oil. GM officials have said their chief risks in Russia are to the brand name and leaks of technology, rather than financial risks.

High import duties raise the legal price of imported Blazers up to $65,000-$70,000, which is too expensive for most Russians. The large Jeep-type cars are often associated with shadowy criminal groups.

Making the vehicles in Russia will substantially lower tariffs, and company officials have said the Russian-made Blazers could sell at around $25,000-$30,000. Mikhail Tarasov, an assistant to Chernomyrdin, told Reuters that value added taxes on the new Blazers would be high at first, although he didn't give details. The VAT rate on automobiles is normally 20 percent.

Tarasov said, "we do not have to fight for the consumer now. There are rich people who can pay. Tomorrow, we need to make the car accessible for all." He added that "a family car should be less than $20,000."

David Dent, GM's project manager for the Yelaz plant, said the Blazer's affordability for its target customers would drop quickly if its price rose above $25,000: "If it sells at $30,000, there are going to be a lot fewer customers buying that car than at $25,000." The target customers for the new Blazers are young professionals and families.

Russia is currently hungry for taxes, but Tarasov said Russia's economy should be growing at 4-5 percent annually by the time full Blazer production starts. He said that would increase the vehicle's affordability and free the government to to lower taxes.

Greg DeYonker, executive vice president of GM Overseas Corporation and the GM executive for the former Soviet Union, said that Yelaz-GM hoped ultimately to produce 250,000-300,000 cars a year, and that GM had begun advanced planning on expanding the plant to build a passenger car. He said that such plans could take effect by late 1999, under the right circumstances: "we are dedicated to expanding that Blazer shop," he said.

Paul Dever -- The Auto Channel