Feb. 18 (Bloomberg) -- Ford Motor Co. agreed to form a joint venture to assemble and distribute vehicles in Russia with OAO Sollers, the nation’s second-largest automaker, after Fiat SpA’s talks to create a similar arrangement there failed.
The planned venture, called Ford Sollers, will manufacture Ford vehicles at plants in St. Petersburg and the Republic of Tatarstan, east of Moscow, starting this year, Dearborn, Michigan-based Ford said today in a statement. Ford and Sollers each will own half of the venture, the companies said.
Ford, Volkswagen AG and Toyota Motor Corp. are increasing Russian output and adding models as the nation’s economy expands and government incentives spur purchases. Today’s agreement will help Ford diversify in Russia, where it already has a significant operation in the St. Petersburg area, said Warren Browne, a vice president at consultant AutomotiveCompass LLC.
“Ford is obviously making an aggressive play in Russia, and Sollers is going to help them on that,” said Browne, who’s based in Northville, Michigan, and is a former head of General Motors Corp.’s Russian operations.
Russia may become the world’s sixth-largest auto market in 2020, with 4 million deliveries a year, the Boston Consulting Group said in a report earlier this month. The nation now is the world’s 10th-largest, with 1.9 million annual sales, according to the Boston-based consulting firm.
Ford fell 20 cents to $15.77 at 6:40 p.m. in New York Stock Exchange composite trading. Fiat dropped 12 cents, or 1.7 percent, to close at 7.08 euros in Milan.
Fiat had been in negotiations with Sollers, which also makes vehicles in Russia for Ssangyong Motor Co. and Isuzu Motors Ltd., about a 2.4 billion-euro ($3.3 billion) venture until talks broke down. Turin, Italy-based Fiat will continue with its plans for Russia without the agreement and plans to produce 500,000 vehicles in the country by 2016, said a Fiat spokesman, who declined to be named, citing company policy.
Fiat will maintain a separate deal with Moscow-based Sollers to produce vehicles including the Albea car and the Ducato van, the spokesman said.
Fiat, which runs Auburn Hills, Michigan-based Chrysler Group LLC, is targeting fast-growing economies to counter losses in Europe, its biggest market. The company lost about 1 billion euros in Europe last year, compared with an operating profit of 1.4 billion euros in Brazil, according to Max Warburton, an analyst with Sanford C. Bernstein in London.
The breakdown in talks with Sollers is “negative news for Fiat,” said Marco Santino, an analyst with A.T. Kearney in Rome. “Chrysler and Jeep are appealing brands in the country.”
Russian car sales may advance about 16 percent to as many as 2.2 million units in 2011, Marcus Osegowitsch, VW’s Russia chief, said last month. A stable ruble, broadening consumer confidence and improved credit conditions may continue to drive demand, he said.
Russian new car sales jumped 72 percent to 127,564 last month from the same period a year earlier as consumers took advantage of a state cash-for-clunkers program.
Ford’s assembly plant near St. Petersburg began production in 2002 and builds the Focus and Mondeo cars. The automaker, which has 100 dealers in 72 Russian cities, sold 90,166 vehicles in Russia last year, a 9.8 percent gain, according to the Association of European Business in the Russian Federation.
The partnership with Sollers also will include engine production and stamping and involve establishing research and development activities, Ford said in a statement.
OAO AvtoVaz is Russia’s largest automaker.