From Soviet Clunker To Speed Demon

New investors, foreign knowhow, and a hit van have carmaker GAZ in the fast lane

Over the years, the Gorky Automotive Plant (GAZ) has churned out everything from clones of the Ford Model A to Red Army tanks to limousines for the Communist Party elite. The factory, built in 1932 with help from Henry Ford, thrived through most of the Soviet era. But when the Soviet Union imploded in 1991, so did orders for GAZ's cars and trucks. The plant fell on hard times as production plummeted and debt ballooned.

Today, GAZ is back on its feet, with an ambitious new management team led by foreigners. At the plant in the city of Nizhny Novgorod, 280 miles east of Moscow, workers in neat blue uniforms proudly show off their Japanese-inspired production methods. Graphs and electronic displays record the performance of each work team, while photos of the disorganization of a few years ago provide a reminder of how far the factory has come. The Nizhny Novgorod operation is now the centerpiece of GAZ Group, a new automotive holding company incorporating more than a dozen factories, with earnings expected to jump 30%, to $450 million this year on sales of $4.4 billion. Already Russia's leading producer of small trucks and vans and the country's No. 2 automaker, GAZ is eyeing markets from Britain to India.

GAZ's restructuring shows how an outdated Soviet plant can be modernized to meet tough new market demands. After billionaire aluminum baron Oleg Deripaska acquired GAZ from its employees six years ago, he installed new management, spun off noncore assets such as schools and hospitals, and borrowed manufacturing techniques from Toyota Motor Corp. (TM ) that have tripled assembly-line productivity. "The factory has changed fundamentally," says deputy floor manager Oleg Popov, 29. "I see a bright future."

GAZ can trace much of its success to having the right vehicle at the right time. As the economy was collapsing and few state-owned factories and farms could buy its heavy trucks, the company introduced the Gazelle van. Russia's new entrepreneurs, looking for a way to haul goods to stores and markets, loved it. Since 1994, GAZ has sold 1 million Gazelles, and sales are growing by 20% annually. The Gazelle, which goes for $8,000, helped GAZ capture 53% of Russia's market for small trucks and vans.

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Now the company is looking to expand its reach. In July, GAZ made its first foreign investment, rescuing British vanmaker LDV Group from bankruptcy. GAZ's purchase came with the rights to the one-year-old Maxus van, which the Russian company plans to make both in Britain and at home. Birmingham-based LDV will also form the basis of a new entity called GAZ International--the "center for our movement outside of Russia," says Petr Zolotarev, chairman of the GAZ plant. To head it, GAZ hired Martin Leach, an industry veteran who previously ran Ford Motor Co.'s (F ) European operations. GAZ "now has access...to modern technology and a great platform for growth globally," Leach says.

Some of that technology is coming from DaimlerChrysler (DCX ). GAZ last April bought a Chrysler production line in Sterling Heights, Mich., as well as a license to build a model based on the U.S. company's Sebring sedan. The plant is being dismantled and shipped to Nizhny Novgorod. GAZ will use the Sebring platform to replace the once popular Soviet-era Volga. The company also wants to boost exports from today's 25% of sales to 50% by 2013 by targeting Africa, Asia, and Latin America.

Competing globally will be tough for GAZ. The Nizhny Novgorod plant, with 50,000 workers, is still massively overstaffed. But newcomer Leach is optimistic. GAZ, he says, "is well- positioned to take on some of the more established international players."

By Jason Bush

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