General Motors to build car production factory in Russia - 29 May, 2006 - News

The announcement came as Volkswagen AG's chairman Bernd Pischetsrieder signed an agreement to build a nearly Ђ400 million (US$510 million) plant in the city of Kaluga, southwest of Moscow.

GM Vice President Carl-Peter Forster was due to conclude the deal at an evening signing ceremony, the Economic Development and Trade Ministry said on its Web site. The ministry gave no further details except to say that the deal was connected to a government resolution regulating the import of car parts.

Marc Kempe, a spokesman for GM in Europe, confirmed Forster would be in Moscow, but denied any final deal had been reached.

General Motors was an early major foreign investor in Russia's automobile industry, launching a US$340 million (Ђ285 million) joint venture with Soviet-era manufacturer AvtoVaz in the city of Togliatti in 2001.

In recent months, however, production temporarily halted due to a parts dispute, leading to speculation that the venture would be broken up and that GM would follow other major international car manufacturers and build its own plant, the AP reports.

The two sides were also unable to agree on the joint construction of an engine plant in the city of Samara last year, with AvtoVaz saying it feared it would be unable to recoup its investment.

According to Russian media reports, GM has already earmarked a 70-hectare (170-acre) site outside St. Petersburg for the plant, which will produce the Chevrolet Aveo and Lucetti models.

AvtoVaz last year was effectively taken over by Rosoboronexport, the state arms export agency.

Major international auto makers have steadily increased their investment and production in Russia, seeking to tap the nation's growing middle class and a lack of quality Russian-designed and built vehicles.

Toyota broke ground on a US$140 million (Ђ115 million) facility outside of St. Petersburg last year, as did France's Renault SA, which opened a US$250 million (Ђ206 million) assembly plant for its Logan model in Moscow and South Korea's Kia Motors Corp., which launched an assembly line for its Spectra model in the central city of Izhevsk.

VW announced its deal to build a 115,000-vehicle plant in Kaluga on Friday after also considering four other locations, and company chairman Bernd Pischetsrieder signed the deal with Economic Development and Trade Minister German Gref in Moscow on Monday.