GM opens first Russian factory

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ST. PETERSBURG, Russia (AP) -- U.S. car giant General Motors Corp. launched its first Russian assembly plant Friday, hoping that sales in this emerging market will bolster its staggering global performance.

GM executives basked in the praise of Russian authorities attending the opening of the $300 million, 70,000-car-a-year factory outside St. Petersburg, just hours before the world's largest car maker announced it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009.

President Dmitry Medvedev thanked GM "for all the work they have done" and described the new factory as a "good investment project that looks into the future."

GM, which has long had various joint manufacturing ventures in Russia, joins a long line of major international car makers that have opened domestic plants to tap the growing consumer market.

Ford and Toyota have both opened plants in the St. Petersburg region and Hyundai, Nissan, and Suzuki are launching production in coming years. All manufacturers, including Peugeot Citroen and Mitsubishi Motors, are opening a factories in other regions near Moscow.

Before the financial crisis struck, Russia's car market was on track to become Europe's largest. Now, loans for cars have dried up, and coupled with financial uncertainty, car sales have fallen by almost half, according to the Association of European Businesses in Russia.

GM is position itself to take advantage of this restructuring, said GM's Russia spokeswoman Anges Rona said.

"Judging from how fast Russian car makers are curtailing production, General Motors could become number one on the market in two years' time," she said.

"Russia is still seeing growth," said Mikhail Pak, an analyst with Metropol investment bank in Moscow. "Other markets such as North America and Europe are tumbling 20 to 25 percent."

Demand for cheap, well-built cars has exploded in Russia in recent years amid an oil-fueled economic boom. The year-long waiting list to buy the popular Ford Focus has become a symbol of Russia's nascent middle-class.

In a sign of how the crisis is pinching Russian consumers, waiting time for the Focus has recently gone done to 3 months, said Igor Ponamarev, an executive with Ford's official dealer in Russia.

Observers say the first quarter on 2009 will be difficult for Russian dealers and producers.

"We may see a slowdown in the next six months but when the situation economic stabilizes and car loans become more available, the market will keep growing," Pak said. "Russia will definitely become Europe's largest car market - if not this year, then next year."

Many of the foreign makers opening plants in Russia are also trying to get around the punishing import duties, up to 40 percent.

More than two-thirds of the cars manufactured in Russia are now foreign brands, according to PricewaterhouseCoopers, and the market share for Russian cars is shrinking.

AvtoVAZ, one of the world's largest car plant with 90 miles of production lines and the national best-seller Lada, is struggling behind foreign competitors.


Associated Press Writer Nataliya Vasilyeva contributed to this report from Moscow.

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