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Europeans Back Russian Cars

Russian Prime Minister Vladimir Putin, center, posing for a photo with Kamaz team racers in Naberezhnye Chelny, Tatarstan region, Thursday, Feb. 11, 2010. Alexei Druzhinin

European automakers made a vote of confidence in the Russian auto industry on Thursday, when Italy's Fiat signed onto a joint venture with Sollers and Germany's Daimler agreed to increase its stake in KamAZ.

Prime Minister Vladimir Putin presided over the signing of both deals in Naberezhniye Chelny, Tatarstan, and promised that the government would be there with cheap money to support the ventures as the industry struggles to stay afloat.

Vadim Shvetsov of Sollers and Sergio Marchionne of Fiat signed an agreement on Thursday to create a joint venture that will produce passenger cars, SUVs and crossovers. The plant aims to reach peak capacity, or 500,000 automobiles per year, by 2016.

The plant will produce six models on a new Fiat-Chrysler platform, and the new production lines will be added to the existing Sollers plant in the city.

New auto-part production lines launched to support the venture will be housed at a new industrial park and the old Zavolzhsk engine plant, which belongs to Sollers. Patents on the models developed at the new site's engineering center will belong to the joint venture, the companies said in a joint press release.

The venture is slated to require 2.4 billion euros of investment, and Putin said at the ceremony that the government is working out a plan to finance most of that, 2.1 billion euros ($2.9 billion), with a 15-year loan.

The venture has the potential to gain up to 15 percent of the Russian auto market once it reaches capacity, VTB Capital said in a research note Thursday.

The government is "ready to lend a hand to the companies' joint project, including via financing from the largest state banks," Putin said at the ceremony. He said the state would continue to help the companies as long as the venture purchased at least 50 percent of its parts domestically.

Keeping the domestic auto industry afloat has been a key priority for the government's anti-crisis plan, and the state has doled out billions of dollars to struggling automakers while inviting foreign firms in as partners to modernize and invest in the local majors.

"Following the collapse of the Opel acquisition, the Fiat-Sollers and AvtoVAZ-Renault-Nissan consortia have likely been chosen as national champions in the car segment," VTB Capital said.

By engaging in a political project, Sollers is pursuing concessions from the government, such as lower interest rates on some of its $749 million debt, lower transportation tariffs and state purchases, the note said.

Sollers stock rose as much as 6.4 percent and closed 4.6 percent higher at 460.01 rubles ($15.22) on Thursday, its highest level since Nov. 25. Fiat, meanwhile, closed down 2.2 percent.

Putin also oversaw the signing of an agreement on the KamAZ factory, also in Naberezhniye Chelny. Daimler will increase its stake in the truck maker by 1 percent to a total of 11 percent, while the European Bank for Reconstruction and Development has agreed to purchase another 4 percent, according to the memorandum of understanding signed by the parties.

As part of the deal, the EBRD will get at least one seat on KamAZ's board of directors, the companies said in a joint press release. Daimler has been a stakeholder since 2008, when it purchased a 10 percent stake in the automaker for 250 million dollars.

Russian Technologies head Sergei Chemezov said the state-controlled conglomerate would like to increase its stake in KamAZ by 12 percent, to a total of 50 percent, but that the present agreement with Daimler does not allow for a stakeholder to have a controlling stake.

Putin stressed that regional authorities play a key role in ensuring the future of KamAZ and the city of Naberezhniye Chelny.

"We will need support from the regional authorities in the course of carrying out projects," Putin said while meeting with Tatarstan president Mintimer Shaimiyev. "We need to unite federal and regional efforts."

The government seemed willing to start its support right away. At the ceremony, KamAZ signed deals for various government agencies to purchase 10 billion rubles worth of its trucks. "This is not all of the support that will be given to the company," Putin said after the signings.

KamAZ stock rose as much as 10.6 percent and traded 8.6 percent higher on Thursday, its highest level since Sept. 14. Daimler fell 2.6 percent to 32.39, posting its first loss this week.

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