February 18, 2011 / 12:16 PM / 7 years ago

UPDATE 4-Sollers drops Fiat JV, to team up with Ford

* No detail on output targets for Ford Sollers JV

* Expect to begin operations by the end of 2011

* Fiat’s existing small van tie-up with Sollers continues (Adds more analyst comment, sales figures, background)

By Gleb Stolyarov and Bernie Woodall

MOSCOW/DETROIT, Feb 18 (Reuters) - Russian car maker Sollers (SVAV.MM) dropped joint venture plans with Fiat FIA.MI and will instead team up with Ford (F.N) as the U.S. automaker looks to step up its presence in the booming Russian market.

Ford Motor Co is looking to expand the 4.6 percent of the Russian market it had in 2010 and expects to have a binding agreement signed with Sollers OJSC by June and first joint production by the end of the year, a Ford spokesman said.

Also on Friday, two industry sources told Reuters that Volkswagen (VOWG_p.DE) and Russian automaker GAZ Group plan a joint venture to produce 300,000 cars a year in Russia. [ID:nLDE71H1Q4]

Ford is not saying how many cars it expects from the 50-50 venture to be called Ford Sollers.

Together the companies will make and distribute cars and trucks in Russia, where Ford has 100 dealerships in 72 cities and Sollers has a dealer network. Ford’s sales gained only 24 percent in January in Russia, compared to an industry that grew at a pace of 72 percent, according to figures from the Association of European Businesses.

“We believe the partnership will benefit from blending Ford’s distribution channels with Sollers’ manufacturing plants and local experience and connections,” said Efraim Levy of Standard and Poors.

Levy said that while start-up costs are not yet known, he believes Ford will benefit from the increased presence in Russia’s fast-growing market.

Russia will be the sixth-largest global auto market by 2020 with annual sales of 4 million units, up from its current 10th position, the Boston Consulting Group said this week.

Russia will overtake Germany by 2018 as the largest producer of passenger cars and light commercial vehicles in Europe, the consultancy said.

Western carmakers are increasingly reliant on emerging markets, particularly the BRIC countries of Brazil, Russia, India and China, to offset stagnating demand in Europe and less robust sales growth in North America.

Although Ford was the first major foreign automaker to produce cars in Russia in 2002, its sales lag behind others including its U.S. rival General Motors Co (GM.N) in a booming market expected to grow briskly after a savage slump during the financial crisis.

“It’s pretty clear that Ford is behind GM in a lot of the emerging markets, especially in China,” said auto company analyst David Whiston of Morningstar in Chicago. “They want to get a stronger showing and to do so they are going to have to have to enter into projects” in Russia, China and India.

Ford said it sold about 90,000 autos in Russia last year, up from about 82,000 the previous year.

Sollers last year became the second-biggest Russian producer of passenger cars and light commercial vehicles, having total sales of 98,000 units, Sollers said. Ford is the No. 2 U.S. automaker by sales and production, behind GM.

Sollers has five auto plants and a dealership network in Russia, and employs 20,000 people, the company said. Ford in Europe has 66,000 employees.

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 partnership “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 localize 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, well over Ford’s 2010 sales figure of about 90,000 in Russia.

Of the 3,629 cars Ford sold in Russia in January, 70 percent were its Focus compact car, according to the Association of European Businesses.

Ford was 11th among auto brands in the Russian market in January, well behind No. 1 Russian automaker AvtoVAZ’s (AVAZ.MM) Lada brand at 35,500 vehicles, and No. 2 Kia Motors (000270.KS) which sold 8,000 cars in January, the AEB reported. Ford’s sales were up 24 percent.

GM’s Chevrolet brand was No. 4 in January at 7,803 in sales and GM’s European brand Opel sold 3,045 cars.


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.

An existing venture with Sollers for the Russian company to assemble 20,000 to 25,000 vehicles a year of three Fiat models continues, he said.

Fiat in January sold only 788 cars in Russia, AEB figures show, 27th in the Russian market for the month.

Additional reporting by Alfred Kueppers in Moscow, Nigel Tutt in Milan and Helen Massy-Beresford in Paris; Editing by Hans Peters, David Holmes, Dave Zimmerman

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