INTERNATIONAL COOPERATION OF GORKY AUTOMOBILE PLANT IN THE 21ST CENTURY

Abstract

In this article there is an analysis of international cooperation of Gorky automotive plant in the 21st century, which is very interesting concerning the variety of foreign partners, products and other international and economic aspects. Despite the fact that foreign cooperation was a really good perspective for the development of passenger cars production on GAZ, it did not save this sphere from crisis. In the text there are the most brilliant cases of international cooperation for Gorky plant in the 2000s and the assessment of their results. 

Full Text

Gorky automotive plant or GAZ is the second well-known Russian car manufacturer which specializes mostly on producing commercial vans. It makes about 100 thousand cars per year and sell them not only in Russia and CIS (Commonwealth of Independent States), but also export them in Eastern Europe, Southeast Asia, South America, Middle East and Africa [1].

Its history lasts from 1920s and began from international cooperation between Soviet and American parties. The situation in automotive sphere during the 1910s – 1920s in USSR was really bad because of government paying attention on other economic spheres. When transport became a real instrument for countries to speed up their development and to make living standard higher, Soviet rulers realized the necessity of building strong automotive sphere in the country. It was nearly impossible to make a new automotive plant by using only inner sources, that’s why it was a reasonable decision to find a foreign partner. As United States was the leader in automotive sphere at that time, it became the main candidate [2].

After some time of negotiations, in 1929 USSR signed a contract with famous American Ford Motor Company about help in building a factory and organizing production there. Soviet party took two models as a basis – Ford-A and Ford-AA. The factory was planned by famous American architect Albert Khan. After nearly 5 years after the first car appeared from the gates of GAZ, independent models on soviet construction started to be produced [3]. From 1932 to 1938 Gorky plant became the leading factory in the country, mastered and produced 17 models and modifications of cars, producing 68.3% of all cars produced in the country [1].

80 years passed, plenty of models were developed and produced in Gorky. After fall of the USSR in 1990s, GAZ continued working, but had really big financial and organizational problems as all factories in Russia at that time. New independent projects were considered unprofitable; engineers lost their jobs, because their ideas were not supported. The plant was alive only because of Gazelle vans which production started in 1995. Gazelle semi-truck was recognized as one of the most successful projects in the domestic automotive industry and the entire Russian economy of the 20th century. However, due to economic crisis and morally old technologies used on the factory, the quality of assembling was really bad.

Things changed in 2000, the new century began really successfully for Gorky automotive plant. On December the 14th a famous Russian businessman Oleg Deripaska bought the controlling stake of GAZ and started changes. At the time of the acquisition of the Gorky Automobile Plant in 2000, the company was on the verge of bankruptcy — there were thousands of incomplete cars in warehouses, 90% of settlements were barter and bill schemes, there were no funds not only for investments, but also for timely payment of wages, there were regular downtime in production due to violations of the supply schedule of components. There were several reasons for this: the country's economic system was going through a difficult period, and by the end of the 90s the automotive industry had significantly lagged behind the leaders of the global automotive industry. However, that time was really fruitful for Russian companies in foreign cooperation, because they actively made investments and signed mutual agreements. First of all, Oleg Deripaska reorganized working process by inviting some Japan specialists, who trained GAZ workers. Because of that GAZ cars gained better quality and the whole production was optimized [4].

When GAZ Group was established in 2005, a new stage of development began for the Gorky Automobile Plant: investments in human resources and technology made it possible to turn disparate enterprises of the USSR era into a modern engineering and industrial holding company providing the Russian transport system with trucks and buses. Such transformation required significant costs — it is known that Oleg Deripaska invested more than 100 billion rubles in the modernization of enterprises [4].

Another big problem was left – GAZ made morally old cars, consumers were bored of them and wanted something new and modern. Owners of Gorky plant remembered about successful cooperation with Ford Motor Company, because of which GAZ had a good image in the West. It was really difficult to repeat this because of Ford’s modern scales, so it was decided to find another American partner. Chrysler Motor Company accepted the request from GAZ and in 2003 negotiations began. This process was pushed forward because of incident with ZMZ (Zavoljski Motor Company) engines in 2005, when this manufacturer significantly raised prices for their production [5]. GAZ and Chrysler signed a treaty according to which Gorky plant bought 150 thousand engines and made a producing line for a rebranded Chrysler Sebring which was named Volga Siber. This car was actually modern and in general useful for Russian conditions.

This cooperation ended up sadly because of economic realities. At first GAZ engineers made a restyling for an old Volga 31105 by using Chrysler engine and other foreign options. Unfortunately, the financial crisis began in 2008, making the price of this car really high for customers. It was replaced by Volga Siber, which faced exactly the same problem. Moreover, there were no conditions for repairing American cars in Russia, parts were rare and expensive. That’s why the demand for Volga Siber significantly fell after some time from its appearance on Russian market. The story of GAZ sedans finished in 2010, and since that the plant specializes only on commercial transport [6].

In 2008 Chrysler negotiated with GAZ Group to organize Dodge Caliber assembly at the Gorky Automobile Plant. Production was planned to be placed at the facilities where Volga cars were being produced. Chrysler stated that they hope to improve their position on Russian market through local assembly. According to experts, the start of production of the Dodge Caliber on GAZ could cause an expansion of cooperation with Chrysler, from which GAZ Group acquired the production assets of the Sterling Heights Automotive Plant in 2006, as well as a license to manufacture cars on the Chrysler platform. However, the Russian company emphasized that the Dodge Caliber production project was "tactical" and did not mean that the group had decided on a strategic partner. And so happened some time after – this project was denied due to inner problems of the Gorky plant [6].

There are some other precedents of GAZ foreign cooperation in the 2000s. In 2005 Mahindra Company from India started negotiations with Gorky plant, which resulted in producing a small amount of SUVs (Super Utility Vehicle) called Marshall. The main problem was also about the price (20 thousand dollars) and logistics for importing spare parts. After making 100 cars, this project was considered unprofitable [7]. The same thing happened with English company LDV (Leyland-DAF Vans), which controlling stake was bought by GAZ. This company made vans called Maxus. In addition to financial and service problems, Maxus turned out to be a competitor for Gazelle – the most sold model of Gorky plant. That’s why stakes of LDV were sold to Chinese partners, and Maxus is produced even nowadays under Chinese brand SAIC (Shanghai Automotive Industry Corporation) [8].

To sum up, we should admit that international cooperation for GAZ in the beginning of the 21st century was not really successful due to various reasons. The positive thing is that during joint projects Gorky plant made connections with world’s biggest car parts manufacturers. This cooperation made it far easier for GAZ to make its brand new model – Gazelle Next, which is actual even today. Due to Western sanctions in 2020s GAZ also faced some big problems, but they were not as drastic as for AvtoVAZ, which construction bureaus were completely destroyed by foreign partners. Oleg Deripaska didn’t destroy the independence of the plant, but improved its effectiveness, add new models and technologies, which help GAZ remain a successful manufacturer and build plans for the future.