Magna, Avtotor Sign Deal to Develop Russia Manufacturing Cluster

By James Marson

MOSCOW--Auto-parts giant Magna International Inc. (MGA) is the latest company to tap into the growing auto market in Russia after signing an agreement with Russian carmaker Avtotor Holding Ltd. to develop an automobile manufacturing cluster in the Kaliningrad region at a reported total cost of $3.2 billion.

Magna, which is listed in New York and Toronto, and its Russian partner will set up as many as six full-cycle vehicle-assembly operations for different automakers and up to 15 automotive components production plants, the companies said in a joint statement Friday.

The automotive components facilities will produce parts for Avtotor's needs, and may also supply other Russian automotive firms as well as export parts to other countries. The final production capacity is expected to increase throughout several phases, with the potential to reach up to 250,000 vehicles per year by 2018.

Russian media cited the chairman of Avtodor, Vladimir Shcherbakov, as saying earlier this year that the project would cost $3.2 billion. Kommersant and Vedomosti newspapers say Avtodor will own 60% of the joint venture, with the rest controlled by Magna. A spokeswoman for Magna declined to provide further details of the deal. Avtotor could not be reached for further comment.

The Russian automobile market is a rare bright spot in Europe, with sales expected to return to pre-crisis levels and approach 3 million cars this year. Russia is expected to surpass Germany as Europe's largest auto market by 2014.

"Russia is an important automotive market with the potential to become the largest market in Europe," said Guenther Apfalter, president of Magna International Europe.

Magna will support Avtotor in the conceptual design and technical preparation of the cluster and may serve as partner for the localization of components production in the Kaliningrad region, the companies said.

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