Magna and Avtovaz Ink Russian Cooperation Deal

TOLIATTI, Russia — Canadian corporation Magna International has signed a framework agreement for a cooperation deal with Russia's biggest auto producer, Avtovaz.
The move was not unexpected. Since representatives of state-owned arms exporter Rosoboronexport were elected to the Avtovaz board of directors in late 2005, there has been much speculation about the future of Russia's biggest automobile producer.

A deal with Magna, one of the biggest parts suppliers in the world, should put the company on the path of reform. But there are still a lot of questions to be answered.

Avtovaz has a hopelessly outdated production facility in Toliatti, south of Moscow, capable of churning out close to a million complete cars and knockdown kits a year. However, production rose just 8 percent during the first 10 months of 2006 amid a market growth rate of around 20 percent.

Avtovaz's bestselling product, a midsize front-wheel-drive sedan, was designed in the early 1980s with assistance from Porsche engineering, while a rear-wheel-drive model is derived from a 1960s Fiat. In 2004 a new model, the Kalina was introduced, but it has been plagued with quality problems. Another new model, an upper midsize car that would compete against the likes of the Ford Mondeo and Opel Vectra, is expected by the first quarter of 2007.

The new deal with Magna should enable Avtovaz to open a new production facility with a capacity of 450,000 cars a year, where a brand-new model would be produced from 2009. It is rumored that this "platform C" model is the project 2116 that has been making the rounds of European engineering companies for years. However, the not-so-small question of who will secure the $1.7 billion required by this 50/50 joint venture still lingers.

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