Components in Italian

Severstal-auto will produce FIAT engines

More and more companies are seeking to take advantage of customs benefits in the production of auto components before Russia joins the WTO. Today, an agreement is expected to be signed between the Canadian Magna and AvtoVAZ on the creation of a joint production of automotive components, which may operate in industrial assembly mode. And yesterday, Severstal-auto and a subsidiary of the Italian FIAT signed a memorandum of intent to create a joint venture in Russia to produce diesel engines of the F1A series. As the Russian company said in a statement, the project will be implemented at the production site of the Zavolzhsky Motor Plant (ZMZ, owned by Severstal-auto). The general director of the Russian company, Vadim Shvetsov, told reporters yesterday that the cost of implementing the project to create a joint venture for the production of engines will be about $100 million. However, the ratio of financial investments in the project from Severstal-Auto and FIAT has not yet been determined.

The production of engines within the framework of the joint venture is expected to start at the beginning of 2008. The production capacity of the enterprise will be 90 thousand engines per year, a volume the company expects to achieve within three years after launch. The joint venture will produce a 2.3-liter F1A engine that complies with Euro-3 standards, which may be introduced in Russia just in time for the start of its production.

The companies intend to supply the bulk of the engines that the joint venture will produce to power FIAT Ducato light commercial vehicles. Severstal-auto will begin production of these cars (production volume is expected to be 75 thousand per year) in 2007 at the site of the Alabuga special economic zone in Tatarstan. However, the production of engines, which the companies intend to carry out jointly, will be focused not only on meeting the needs of FIAT models. Severstal-auto - Russia's largest manufacturer of diesel engines - is going to equip SUVs of its own production - UAZ Patriot - with them, and by the end of this year it can agree with the Gorky Automobile Plant on the supply of new engines to it (now Severstal-auto "provide a significant share of GAZ's need for engines). “The start of production of the F1A engine in Russia will ensure competitive price positioning of FIAT Ducato cars, which we will begin producing next year. In addition, this project will contribute to the effective promotion of UAZ Patriot SUVs due to the appearance of a new configuration with a modern and economical diesel engine,” Mr. Shvetsov is quoted in the Severstal-auto press release.

“In our opinion, the construction of a joint venture with FIAT for the production of engines is a very positive event for Severstal-auto,” says Dmitry Kipa, an analyst at Prospekt Investment Group. -- The creation of such an enterprise in Russia today is the only example of localizing the production of engines for foreign cars, which should have a positive effect on the cost of cars produced in the future by a Russian company. In addition, equipping the UAZ Patriot with a new engine will significantly increase its competitive advantages in this class and will contribute to even greater growth in SUV sales.”

Anna LANDER