GM may enter Ukraine market via auto joint production effort (09/29/96)

GM may enter Ukraine market via auto joint production effort

by Roman Woronowycz
Kyiv Press Bureau

KYIV - In a move that may signal the entrance into the Ukrainian market of the largest corporation in the world, General Motors Corp. on September 12 signed an agreement to do a feasibility study for a joint auto production effort with AutoZAZ, Ukraine's only car manufacturing outfit, located in Zaporizhia.

The feasibility study, which is being spurred by a $143,800 grant from the U.S. Trade and Development Agency and to which the automotive giant is contributing $370,000 of its own money, is intended to determine if AutoZAZ has the facilities and corporate structure that GM requires for partnership.

U.S. Ambassador William Green Miller, in announcing the grant, listed three requirements GM has before moving into Ukraine: "It depends on the market, the facilities and whether they can work together," said Ambassador Miller.

General Motors Vice-President Louis Sande explained that General Motors needs several questions answered to determine whether it can work with AutoZAZ. "Can we agree on the product to be manufactured in Ukraine? How can we both utilize the facilities that AutoZAZ has today? How will the manufacturing marriage take place?"

He added, "I'll be frank, I do not see any major obstacles today. The study is merely to see whether AutoZAZ and GM can work together."

Discussions between the Ukrainian and U.S. car manufacturers began in early 1996 when AutoZAZ contacted GM to inquire about their interest in a joint venture that would manufacture passenger cars and light commercial vehicles for Ukraine. Since then both sides have paid visits to the facilities of their respective companies.

Mykola Lastovecky, deputy director of AutoZAZ, underscored that the move must be viewed as simply a study, not a commitment. "AutoZAZ is looking at many foreign investors. Right now GM is the one, but this is all preliminary," said Mr. Lastovecky.

Mr. Sande agreed that right now everything is wide open. He would not speculate on what type of agreement might be made or the amount of GM's potential investment. He said the U.S. auto manufacturer has many types of agreements with countries and foreign firms around the world. He characterized GM participation as flexible. "In some areas it is 10 percent, other places 100 percent," he explained.

For Ukraine, a union between the world's largest auto manufacturer and its own would help Ukraine in all the obvious ways and more - the obvious being that large amounts of GM dollars would flow into Ukraine. In addition, Ukraine could begin to use its high-tech resources in manpower and machinery, which today are sorely underutilized. Finally, in-country manufacture of high quality automobiles would reduce the large demand for imports that exists today in the Ukrainian auto market.

But Ambassador Miller said there are benefits for the U.S. as well, and this is why he and Senior Commercial Officer Andrew Bihun worked so diligently to bring the parties together. "The U.S. Embassy policy is to assist Ukraine in every way possible to become a stable and independent country with a strong economy,' " he explained. "A strong economy in Ukraine will assist in a strong economy in the U.S. It is a simple equation."

AutoZAZ currently produces the only two cars made in Ukraine, the popular Tavria, a compact, and a two-seater subcompact, the 968. A Luhansk firm produces a jeep-like truck called a Volyn.

The two auto manufacturers have also discussed expansion and improvement in the production of the Tavria. GM said it hopes to have the feasibility study completed by the end of the year.