GM-AvtoVAZ Breaks Ground for Plant Expansion; Prepares for All-New Chevy Niva

VIENNA – GM-AvtoVAZ, a joint venture between General Motors and Russian Lada-maker AvtoVAZ, today officially breaks ground for an expansion of its car plant in Togliatti, Russia. 

The new facility will be located in the Special Economic Zone about 1.9 miles (3 km) from the original plant.

For Jeffrey Glover, outgoing managing director of GM-AvtoVAZ, the expansion is one of the most important moments of his time at Togliatti.

“The thing I am really excited about is that we got the new project approved by the shareholders,” Glover tells WardsAuto, “which means approved funding for the next-generation Chevrolet Niva and a facility that includes the press and body shops."

Glover arrived at a difficult time for Togliatti in December 2009, during the global economic crisis. Now he is leaving for Germany as director-Project Accelerate Opel/Vauxhall at Adam Opel in Rüsselsheim.

There are more achievements by Glover and his team: “We regained segment leadership last year” he says. “We added back the 2-shift operation after the (economic) crisis, we had record sales and production results last year (and) we have set a benchmark for efficiency in GM International Operations.

“We have a low-cost business model, and we proudly defend it,” he adds, noting there is more market competition than just a couple of years ago. “We need to turn over our expenditures two or three times in our hands before we spend it.”

The quality of the cars built at Togliatti has improved markedly, he says. “Over the last two years, we have registered 80% fewer customer claims. The Niva has never been better.”

The first GM-AvtoVAZ plant, which is located within the extensive AvtoVAZ facility, receives welded bodies for its Chevrolet Niva small cross/utility vehicle from there. The JV last year manufactured 62,981 vehicles, up 9% from 2011 and a new record.

Sales amounted to 63,023 units, including 2,744 deliveries in other Commonwealth of Independent States countries. The Niva is the best-selling Chevrolet model in Russia.

Glover describes the current production process of the Niva: “The bodies are stamped (at AvtoVAZ); then they are welded; then transported by a truck to another (nearby) shop, where the welding of parts like doors, the tailgate and hood takes place. And then it comes through the wall to us.

“We have our quality engineers on AvtoVAZ’s side of the premises to make sure we are getting good quality. And that business model works. We already do this sort of play, and today we are replicating the play we already have.”

Total investment in the expansion is slightly more than RR6.4 billion ($200 million). In addition to the press and body shop, the new site will include engineering support facilities. It also will nearly double GM-AvtoVAZ’s staff.

“When we announced it last year, we were just under 1,500 people,” Glover says. “The whole project will take us close to 3,000 in total.”

With the expansion, GM-AvtoVAZ’s capacity will be increased to 120,000 vehicles annually.

“Now, can we fill all of that? Glover asks rhetorically. “That will be difficult, but we need to take our time to grow with the market. We will make sure there is demand at the price levels we will sell our vehicle in order to be profitable.”

Once the new operation is completed, GM-AvtoVAZ will introduce the second-generation Niva. The original model was developed by AvtoVAZ and unveiled as the Lada 2123. It later was modified by GM and sold under the Chevrolet brand.

The upcoming model has been developed differently. “We have very capable engineers,” Glover says. “We are using CAD software Catia and Unigraphics and we are using a design house in Italy.”

The Italian design studio Bertone, which participated in a facelift of the current Niva some years ago, helped with some early work on styling of the new model, “but we are using a different design house,” Glover says, adding the new model is almost frozen. “We are doing final refinements on the design right now. It is absolutely spectacular, the car.”

Upcoming Niva Designed With Core Customers in Mind

The styling will be recognizable, “but it will be different, fresh,” he says. ‘You will see more Chevrolet in there,” but the car’s heritage will be apparent.

“I can tell you that it will be just as robust as the current Niva,” he says. We are designing it with the quality upfront, so you are actually going to find a car that has better durability. The styling is much more aligned with the Chevrolet family.”

The next-gen Niva will have a slightly longer wheelbase that will help with handling, and the auto maker is looking to make the luggage space a bit bigger.

“We are designing it thinking about our core customers, so we are thinking about low operating cost, and we want to have the same price positioning as we do today with the current Niva,” Glover says. “And that’s a challenge, because suppliers are hungry for more.”

However, moving to more modern technologies is saving money, he says. “The thinking from 20 years ago is different than today, so less steel, but you can have the same amount of durability and robustness.”

Prototypes will be built this summer, and pilot vehicles will come late next year. Plans are to unveil the new Niva at the Moscow auto show in August 2014. Volume production starts in second-half 2015.

“We need to make sure we validate the car,” Glover says. “It is an important project for us, and there is so much new material on the car that we need to be adhering to special validation procedures.

“We need to do two winters and two summers of testing because we want to replicate the actual customer’s use of the vehicle. We know our customers drive their cars very hard. We have to make sure that when the final product is launched there are no scary surprises in terms of quality. That would destroy our reputation.”

The original Lada 2123 also was shown as a pickup prototype, but the truck was never produced. Glover does not exclude the possibility of pickup or an additional body version. “But as I say to the team here, we have enough on our plate right now. We don’t need to complicate things just yet.”

James Bovenzi, president and managing director-GM Russia and CIS, said in an earlier interview that the engines for the new Chevy will be made in Russia. The current Niva is powered by a 1.7L gasoline mill sourced from AvtoVAZ.

“We are still planning on engine localization here,” Glover confirms. “It will be a different, European-designed engine. I am not going to talk about the source of the design, but it is a major Western OEM.”

The Niva presently is sold in Russia and other CIS countries. In its first production years, GM planned to sell it in other markets as well, but those plans were canceled. However, the new model might be exported to other regions.

“We are making a car that from regulatory standpoints will allow us the ability to enter some of those markets,” Glover says.

The difficulty with exporting from Russia is that it is a developing market with a commodity-based economy. Inflationary pressures are severe, which can have an impact on the exchange rate.

“If your business plan is based on exporting, you can get yourself in trouble,” Glover says. “Our trick, and this is our plan, is to keep the material costs under control to make the business case work for Russia and the CIS states.”

If the auto maker gets the material costs and other associated costs working with just that part of the business, it is possible to talk about exports to other regions.

“If I start to write export volumes into the business case now, I am essentially reducing the pressure on my own team to focus on material costs. I dilute the costs,” Glover says. “And I don’t want to do that, because Russia is a very cyclical economy and I want to be insulated against this cyclicality.”

According to earlier plans, confirmed by AvtoVAZ President Igor Komarov in interviews, GM-AvtoVAZ was going to produce the successor to the current Lada 4x4 small CUV in addition to the new Chevy Niva. But AvtoVAZ now has different plans.

“That part of the program was not approved,” Glover says. “It appears AvtoVAZ wants to go a different direction at this point. Currently, we are tooling up for only our vehicle. The new Lada 4x4 is a different project. We have the capacity, and we would love to support our shareholders.”