GM and Ford shift gears in former Soviet Union They plan to make cars at their own plants there

MOSCOW — MOSCOW -- After two years shut out from the Russian automobile market by prohibitive import taxes, the United States' two biggest automakers are making plans to set up local manufacturing facilities.

During the course of this month, both General Motors and Ford Motor Co. announced they were in talks on vehicle-assembly plants in the former Soviet Union.


In early December, General Motors formed a $250 million joint venture to build 50,000 Chevrolet Blazers a year at a plant in Tatarstan, 1,400 kilometers east of Moscow.

A week later, Ford announced that it had signed a memorandum of understanding for the development of a joint-venture assembly plant in Minsk, the capital of the former Soviet &L; Republic of Belarus.


The announcements fit in with the global expansion plans of GM and Ford but each company says the main reason for setting up locally is that it provides a way to avoid Russia's high import tariffs. Those tariffs add between 250 percent and 300 percent onto the factory price of U.S.-built vehicles.

For example, a six-cylinder car that sells for $24,000 in the United States retails for about $61,000 in Russia.

Louis Hughes, president of General Motors International Operations, said that tariff considerations were a major factor in GM's decision to set up its plant. He said the Chevrolet Blazer had sold well in Russia despite the very high level of import taxes. But he added, "we expect that a locally produced Chevrolet Blazer will be able to be more popularly priced."

Ford's decision to open a kit assembly plant in Belarus also will bring import tax benefits, but they will depend on the fate of diplomatic relations between Russia and its neighbors.

Belarus itself is a fairly impoverished country of 10 million with a small automobile market, but since June it has entered into a customs union with the much bigger Russian market of 150 million and also with Kazakhstan, population 17 million.

Ford says it is hoping to sell vehicles assembled in Belarus to its dealer network throughout Russia and Kazakhstan. Dmitry Yurushkin, a consultant for Ford in Russia, said, "From an economic point of view, Russia and Belarus are practically the same country."

But the rules of the customs union are still unclear and some industry analysts questioned whether Russian automakers will accept competition coming at low rates of import duty from across the border.

Russian carmakers, especially AvtoVAZ, which makes about half million cheap but very poor quality Lada vehicles a year, are lobbying hard against lowering of import taxes.


In response to these pressures, Russia has raised import taxes on cars seven times since December 1993. The tax increases squelched U.S. exports, which dropped from $118 million in 1993 to $49 million in 1994. Industry analysts say sales have recovered slightly this year.

Russian customs officials say the tax increases have risen to the point where smuggling is about the only way to import cars into Russia at a reasonable price. So Ford has signed a memorandum of understanding with the Belarussian government, although it says it will not have a clear deal until spring.

And GM has set up a formal joint venture with a Russian partner and could start manufacturing within 24 months, but the project is still waiting for support and final approval from the Russian government.