Fiat Chrysler Deal to Build Jeeps in Russia Falters
The automaker had negotiated a rescue plan with the Russian government to assemble Jeeps at the TagAZ facility, but that deal has expired and may be canceled.
ST. PETERSBURG, Russia – Fiat Chrysler Automobiles’ plans to build Jeep vehicles in Russia are on the verge of failure, due to the automaker’s inability to launch production at the TagAZ assembly plant located in Taganrog in Western Russia.
The Arbitration Court of the Rostov region recently declared the Taganrog Automobile Plant bankrupt and started its liquidation several days ago. FCA had negotiated a rescue plan with the Russian government to assemble Jeeps at the facility, but that deal has expired and may be canceled.
Jeep production from semi-knocked-down kits has been seen as a key to reviving the TagAZ plant, which despite annual production capacity of 180,000 units produced only 2,152 Hyundai vehicles in 2013, down 87.9% from 17,740 prior-year, according to WardsAuto data.
The agreement reached in the summer of 2011 with the Russian government called for Jeep production to launch at the end of 2012 and to achieve output of 120,000 units this year.
The rescue plan included debt restructuring, but that has been delayed by the inability of lenders including Russian banks Sberbank and VTB to reach an agreement with TagAZ’s principal owner, Mikhail Paramonov. The Russian government is considering canceling the agreement with FCA because of the possibility of further delays.
Sources close to FCA say the automaker is considering building a new plant from scratch, or purchasing TagAZ outright.
Some Russian analysts, however, say the latter option is unlikely, as, in addition to the proposed Jeep production, the government has said Chinese automaker Chery may build cars at the TagAZ plant.
A deadline for the launch of Jeep production likely will be set this summer. Only 5,200 Jeeps were sold in Russia last year, a 0.2% market share, and those figures could decline without local production.
FCA also could establish production at the Circassian Derways plant, of which Sberbank also has partial control. That facility, however, has begun production of Chinese automaker JAC’s S5 CUV.
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