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Kaliningrad Governor Georgy Boos driving the first Opel car out of the independently owned Avtotor plant Monday.
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KALININGRAD — The first Russian-assembled Opel car rolled off a Kaliningrad assembly line Monday, providing a foothold for General Motor’s European unit ahead of a possible sale of the company to Magna and .
The independently owned Avtotor plant invested a joint 39 million euros ($58.6 million) with GM to start assembly of the Opel Astra and Opel Zafira. Total investment will reach 50 million euros by 2011, the plant said.
“We are already producing brands known around the world, such as BMW, Hummer and Chevrolet, and now we’ll start manufacturing two Opel models, bringing our range of models to 28,” said Vladimir Shcherbakov, chairman of Avtotor’s board of directors. “When I talk to my American colleagues, they tell me that only a madman would dare to produce 28 models at a single plant in these difficult times. But I think we will succeed.”
Sales of new cars and trucks have plummeted this year, knocking Russia from its spot as Europe’s second-largest car market last year. According to the Association of European Businesses, nine-month sales in Russia this year have fallen 51 percent to 1.11 million units.
Kaliningrad Governor Georgy Boos was on hand for the ceremony — driving the first Opel Astra out of the plant himself — but he was more moderate in his expectations for the line.
“I think we should concentrate on several basic models that will help us build up a strong car cluster in the Kaliningrad region,” he said. “If any of you 10 years from now will be able to boast of three to four models that last and have high value, than we can say the project succeeded.”
The Opel assembly is facing some challenges amid the difficult economic conditions, but GM is optimistic on its chances, said Chris Gubbey, head of GM Europe.
“We’re aware of the problems we may be facing during these hard times,” he said. “But to my mind, now is the best time to gain market share and to launch world-class production.”
He brushed off concerns that cars produced in Russia were lower in quality.
“We have global quality standards, and no plant is allowed to be launched without meeting those standards,” he told The Moscow Times. “We have a quality-control system at all stages of production, and final quality inspection at the end. We are aware of the stereotype that a car produced in Russia isn’t equally good as one produced in some other part of the world, but I must tell you this isn’t true.”
A tentatively approved deal for Canadian car parts maker Magna International and Sberbank to buy 55 percent of Opel from GM will not affect production in any way, Gubbey said.
The U.S. automaker briefly went through bankruptcy in the United States this summer, but Opel was not involved in the proceedings.
The Opel sale has been delayed again amid European Commission concerns that the Magna-led consortium had an unfair advantage because of aid pledges from the German government. Berlin has since said the assistance was available to any potential bidder, but GM has said a final sale will not happen until at least next month — and could be reconsidered altogether.
Valery Gorbunov, head of Avtotor-Holding, said a representative from Magna had already visited the plant and said they would have no objections to the project. Officials at Magna were not immediately available for comment.
An Avtotor official told Vedomosti in June that the plant was not worried about the possible sale of another GM unit, Hummer, to China because it built the trucks by contract. Sichuan Tengzhong Heavy Industrial Machinery completed the Hummer purchase earlier this month.
The Kaliningrad plant expects to assemble 63,000 cars this year, compared with 110,000 in 2008, although it has not said how many Opels it expects to make. The company does not disclose its financial results, although Expert magazine estimates that it had sales of more than 51 billion rubles ($1.76 billion) in 2008 and net profit of 2.8 billion rubles.
Avtotor is in good financial shape, Gorbunov said, and it managed to restructure its debts, although he declined to disclose the plant’s total amount of the debt.
“We managed to restructure our debts before our creditors, expanding the term in which loans should be paid by six months,” he said. “The figures are not critical for us.”
The new project will create 418 jobs when assembly reaches full capacity. Currently, only 96 new workers have been hired for the Opel project. Avtotor’s staff is still working four-day weeks, and salaries have generally been cut 10 percent to 30 percent because of the recession.
“If the market does well, we will produce 150,000 cars in 2010 and feel really good,” Gorbunov said, without detailing how much of them would be Opel models.
GM top executives declined to discuss the future costs of the Opel Astra and Zafira, produced in Kaliningrad, which has a lower tax regime as a special economic zone.
“The prices will be market driven,” Gubbey said.
“Most likely, Avtotor is simply a launching pad for making Opel cars in Russia,” which will eventually be moved to other locations, such as the General Motors plant in St. Petersburg, said Ivan Bonchev, an auto analyst with Ernst & Young.
“It’s probably cheaper for GM to assemble Opels on a contract than to fine-tune production at its own factory while the company’s status in Russia is not entirely clear,” he said. “It’s not entirely clear what will become of all the business that GM does in Russia if the [Opel] deal goes through.”
GM uses Avtotor for contract assembly of its niche vehicles, such as the Hummer, Cadillac, and some heavy Chevrolet SUVs.
The 150,000 production goal figure is “impossible” given the conditions of the auto market, Bonchev said, but production would also depend on whether GM gives Avtotor more models to produce from its St. Petersburg plant.
Maria Antonova contributed to this report from Moscow.
