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Court Backs Order to Alter GM Deal

The original Niva, in production for more than two decades, sells for about $7,000. Unknown
A court has upheld an order by anti-monopoly authorities that could cut into the profits of U.S. auto giant General Motors' landmark venture with AvtoVAZ in Tolyatti.

The Federal Anti-Monopoly Service said the Moscow Arbitration Court backed its decision to require GM and AvtoVAZ to remove a clause from their joint-venture contract that essentially guaranteed GM-AvtoVAZ a monopoly on the midrange market for sport utility vehicles.


Valery Volkov / Vedomosti

The new Chevrolet Niva, unveiled in 2002, can be bought for just under $10,000.

The agreement, also signed by a third investor in the project, the European Bank for Reconstruction and Development, required AvtoVAZ to phase out production of its popular Niva jeep to clear the market for the newer Chevrolet Niva, which entered mass production last year.

The anti-monopoly service said that clause violated competition laws.

The two Nivas are the only 4x4's in the $7,000 to $10,000 price range. The older Nivas retail for about $7,000, while the Chevy model sells for about $10,000.

"The clause directly stated that AvtoVAZ was to reduce production of the Niva to decrease competition for the Chevrolet Niva," anti-monopoly service spokeswoman Irina Kashylina said Tuesday.

"We want consumers to have a choice, because people like farmers cannot afford a Chevrolet. We want the market to decide whether production of the old Niva should be curtailed."

GM, AvtoVAZ and the EBRD jointly launched the $332 million project in September 2002. Its output has grown steadily, from some 30,000 Chevy Nivas in its first full year to a projected 55,000 this year.

GM-AvtoVAZ had expected to increase output to 75,000 per year, but those plans may now have to be put on hold.

The older Niva has long been popular with Russian auto enthusiasts. AvtoVAZ produced 85,000 of the jeeps two years ago, but plans to produce just 30,000 this year, an AvtoVAZ spokesman said.

A spokesman for GM-Europe, who asked not to be identified, said GM and AvtoVAZ had removed the controversial clause from their general agreement in anticipation of an unfavorable court ruling.

The spokesman said he did not know whether this meant that AvtoVAZ would now increase production of its old Nivas.

AvtoVAZ, which is both an owner and the largest supplier of parts for the Chevy Niva project, said it could not automatically increase production of the old Niva because it had shifted much of its production capacity to building components for the new Niva.

"I don't think it's logical or attractive for us to increase the production of an automobile we have been assembling for the past 25 years," said Alexander Gromkov, an AvtoVAZ spokesman in Moscow. "But management has not yet made a policy decision."

Automotive industry analysts in Moscow said the ruling was a blow to GM's activities in Russia.

"AvtoVAZ can keep production at current levels of the old Niva for the time being," said Aton automotive analyst Alexei Yazykov.

"But this is negative for the joint venture because it means it won't be able to increase Chevrolet Niva production if AvtoVAZ keeps making the old ones," he said.

Nevertheless, Yazykov did not see the presence of the old Nivas on the market as a threat to the Chevrolet Niva on their own.

"The differences in price put them into separate consumer categories," he said.

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