GM and Avto VAZ were sitting down to finally negotiate a deal that they had originally committed to in 1999, to jointly build and sell Chevrolets in the Russian market. This car market was expected to account for a significant share of global growth over the next decade. GM felt pressure to jump on board or miss the opportunity. Other auto makers were already on the move. Ford, Fiat and Daewoo were already exploring their own opportunities in Russian and GM did not want to be left out in the cold. However, things were not going to be easy due to a weak economy, turbulent car market, legal problems of Avto VAZ related to tax evasion, the fact that Avto VAS was horribly inefficient at building cars, and a divided showing of support at GM’s home base. All of these complications could prove to be too much for even the GM powerhouse to overcome. Some GM leaders were pushing to share the risk with another automaker. Which is where Adam Opel, GM’s European division comes in. David Herman was previously the Chairman for Adam Opel which he hoped, would make convincing them to buy into the venture easier. Time would tell if luck would be on his side. General Motors
GM founded in 1908, was the largest automaker in the world. GM managed operations in over 50 countries and sold over $160 billion in sales with $4.4 in profits in 2000. Not all was well for GM due to the fact that their market share had been shrunk to a mere 13.6% of the global market share with Ford nipping at their heels with 11.9% and Volkswagen with 11.5% market shares respectively. Russia was considered an unclaimed territory that all automakers had their eyes on. Russia Auto Industry
Russian Automobile industry was way behind the curve of the rest of the traditional auto industry regions (Western Europe, North America and Japanese). Russia had many good intentions, but many problems as a country. Revolving economic problems and poor management prevented them from being able build anything but unsafe and unreliable automobiles. They did experience a big supply and demand gap that if met, could prove to be very profitable. The variability of import duties contributed greatly to the wide swing in car sales. It would seem that just like the rest of the country’s issues, volatility in the auto industry was a major problem that would need to be overcome in order to realize the true potential of the market. AvtoVAZ
AvtoVAZ was the largest domestic producer of Russian autos so it was the natural choice for GM’s Davis Herman to try and partner with. However, huge they may be they were hugely inefficient. Suffice to say the only thing that measured as large as their plant size was the size of their inefficiency! They had the largest plant in the world, over a mile and a quarter in size. It had over 250,000 people and they were all armed with a hammer! They would hammer parts into place and had no current processes in place for measuring consistency or efficiency. In 20 years they were able to grow to a place where they produced 750,000 cars per year, but developed only one new car. They spent $2 billion to develop that single new model. As AvtoVAZ’ prices increased Russians switched to imports and thus caused a tail spin in their market share in the 1990’s. Due to economic instability during the late 1990’s and the return of protective tariffs in 1994, AvtoVAZ was able to rebound some due to the imports becoming too expensive for Russian’s. In more recent times they were hoping to develop a modern car for export. Instead of focusing on the hungry market they have domestically, they want to enter into a joint venture, invest $850 million to send it out of the country! Let’s not forget their tax problems…accusations and court proceedings around tax evasion were a big problem and then on the turn of a dime, the allegations were dismissed. Corrupt government official paid off? I would speculate that there is a high probability that...
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