Putin Presents Fiat with a 2.4 Billion Euro Gift

By Brendan Moore

02.11.2010

Fiat logoIn a surprise move, Russian Prime Minister Vladimir Putin told Fiat and Sollers executives that the Russian government would provide the major portion of a 2.4 billion euro ($3.29 billion USD) financing package for their proposed joint venture intended to become Russia’s second-largest auto manufacturer. The Russian government will also act as guarantor for loans made by any other lenders, thereby effectively making the government the default lender for the joint venture capitalization.

Fiat plans to manufacture up to 500,000 Fiat and Chrysler brand vehicles a year in the plant by 2016, in tandem with its local partner, Sollers. Fiat and Sollers currently produce vehicles together in Russia, but the annual production is only around 19,000 units annually.

The forecasted production of the joint venture would enable Sollers to leap from their current 18th place in the ranks of Russian vehicle manufacturers to a firm 2nd place, right behind AvtoVAZ. Fiat owns a large stake in AvtoVAZ, by virtue of a billion dollar investment two years ago in the struggling Russian automaker. AvtoVAZ has production capacity of approximately 750,000 vehicles per year.

A Russian government spokesman stated that the nine Fiat and Chrysler models the joint venture will produce will have a minimum of 50% local content. He also added that Fiat will export 10% of their vehicles produced in the plant.

The 50% content number is a lofty goal as there are few component makers in Russia currently; most vehicle manufacturers import their parts and part modules and assemble their vehicles at a location in Russia in order to qualify as a domestic producer.

Vladimir Putin behind the wheel of a Sollers vehicle in December 2009 - Reuters file photo

Vladimir Putin behind the wheel of a Sollers vehicle in December 2009 - Reuters file photo

Most auto industry analysts believe that Fiat will need to export far more than 10% of production from the new plant in order to make the joint venture a success. New car sales in Russia dropped a massive 49% last year, and the new vehicle market is not expected to recover for years.

The announcement of the joint venture financing must be making the other foreign automakers in Russia scratch their heads – they have all spent their own money to expand in Russia, and have all sustained losses to their own portfolios as the new car market in Russia has severely contracted, and they have got to be wondering what Fiat has that they don’t have in terms of pull with the government.

It is a question worth pondering from a global perspective as well, since Fiat recently received Chrysler from the US government for free, along with plenty of government-backed loans that will provide operating capital for the Italian automaker to assert itself in the North American market.

All that can be assumed at this point is that Sergio Marchionne, the CEO of Fiat, is an extremely persuasive man.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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7 Comments

  1. Marchionne must be one hell of a salesman, that’s all I’ve got to say.

  2. I don’t know how Fiat could possibly turn down an offer like that. Where is their risk? There is very little downside for them.

  3. And just as a random thought, it’s probably not a good idea to leave Marchionne alone with your girlfriend or wife for very long. I agree that he is probably a very persuasive guy!

  4. Ford and GM are strong in Russia, and you know they would have liked to have that deal offered to them. That is one sweetheart deal. Fiat gets a market given to them, with a bow on it, and also gets someone else’s money to play with in the bargain. Not bad at all.

  5. As a Fiat fan dating back to the ’60s and a Chrysler fan from the ’50s, it sure nice to see them coming into their own. And in Russia, yet? Always been fascinated with Russian history and culture. Will their exports be mostly to Europe?

  6. As a Fiat fan dating back to the ’70s and a Chrysler fan from the ’50s, it’s sure nice to see them coming into their own. And in Russia, yet? Always been fascinated with Russian history and culture–the good, the bad, and the ugly of it. Will their exports be mostly to Europe? Maybe China?

  7. Anyone would have liked to have that deal offered to them, anyone!

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