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Russia: Largest Automaker Ready To Join GM/Opel

Moscow, 28 February 1997 (RFE/RL) - Russia's largest automaker, Avtovaz, has signaled that it is ready to sell a majority stake to General Motors Opel division, but there are no hopes of a deal anytime soon.

Vladimir Kadannikov, chairman of Avtovaz and former deputy prime minister, last week told the German daily Hamburger Abendblatt that his financially-troubled company would be willing to take on a strategic investor such as Opel, which is the European subsidiary of the U.S. automaker General Motors.

A spokesman for General Motors Europe said this week that Opel would review the offer, but he said his company does not intend at this time to acquire a financial stake in Avtovaz. But he also said that GM was undeterred by Avtovaz's financial troubles.

"If we felt there was a financial risk to the venture we wouldn't do it," he said.

He said that despite AvtovazUs large debt, it still brings a lot to the table, including existing facilities and extensive knowledge of the Russian car market.

Avtovaz, maker of RussiaUs Lada cars, has in the past shunned the idea of a strategic investor taking control of the company. But the company owes $525 million (2.9 million rubles) in taxes to the federal government and is RussiaUs largest tax debtor. The government had proposed Avtovaz sell 50 percent of its stock to a strategic investor in exchange for debt rescheduling.

Last December Avtovaz was forced to issue shares to raise desperately-needed revenues after the government threatened to launch bankruptcy proceedings. Kadannikov said then that the threat of bankruptcy was a masked attempt to hand over the company to what he called a "few existing clans." He failed to explain, but the Russian media reported disputes about the future of Avtovaz with First Deputy Prime Minister Vladimir Potanin, who used to head Oneksimbank.

The Russian media have also speculated that Avtovaz suffered huge financial losses when it handed over distribution to Logovaz, a large car dealership owned by deputy Security Council secretary Boris Berezovsky. Many observers believe Avtovaz's profits were passed on to Logovaz as a way of avoiding debt repayments to the federal government and utility companies.

In any case, it is unlikely that Opel will step in to rescue Avtovaz anytime soon. But the two companies are in negotiations on a joint venture to produce Opel vehicles at a plant in northwest Russia.

Avtovaz's chief executive Alexei Nikolayev was quoted earlier this month as saying working groups had been set up to develop a plan for cooperation by May. He said they were considering building a plant in Vyborg in Russia's Karelia region near the Finnish border to produce a special Opel model designed for the Russian market.

Both companies have said the proposed factory could produce between 30,000 and 50,000 cars annually.

A spokesman for General Motors said last week that his company is conducting a feasibility study for the project together with Avtovaz and Finland's Valmet automaker. He said they expect the study to be finalized in June, and would take a decision then on whether to proceed.

"It's attractive because the potential market is huge. Some believe Russia and the whole of the former Soviet Union could become the largest car market in the world in 25 years," he said.