Avtotor Breaks Ground on New Assembly Operation

VIENNA – Construction is under way on Russian contract assembler Avtotor’s automotive cluster in Kaliningrad that will include a new facility to build BMW vehicles, plus several other vehicle and parts plants.

Avtotor assembles BMW, Cadillac, Chevrolet, Hyundai, Kia and Opel cars, as well as Hyundai light-commercial trucks.

The project covers 2,965 acres (1,200 ha). Plans call for six plants to be built with combined capacity for complete-knocked-down assembly of 250,000 cars, plus construction of 15 plants for parts production.

The first phase of the project is expected to be finished in 2016, at which time capacity will total 150,000 vehicles a year. That will be extended to 250,000 units by 2018.

In addition, the project foresees construction of apartments for 50,000 people, a university campus and other infrastructure projects.

At least 20,000 new jobs are expected to be created as a result of the construction project.

Investment will total about RR120 billion ($3.8 billion), with Avtotor partnering with state-owned Vnesheconombank and Russia’s Federal Project Finance Center on the project.

Canada-based parts supplier and contract manufacturer Magna International agreed last year to help design the plants and oversee tooling. The first facility to be built will produce BMWs, Avtotor Chairman Vladimir Scherbakov tells local media.

“We are now at the site for the future BMW plant,” Scherbakov is quoted as saying by website rugrad.eu.

The investment of about €360 million ($496 million) in the first facility will be shared equally with BMW, he says. The plant is expected to be operated as a joint venture.

Although a final agreement has not been signed, “negotiations with BMW are going well,” Scherbakov says. “I think that before the end of the year we will complete all the procedural issues.”

BMW is participating in financing the earth-moving work, however.

“If BMW starts to invest, that means they believe that they will participate in the project,” Scherbakov says. “The construction machines…are financed 50:50 (by Avtotor and BMW).”

A BMW spokeswoman tells WardsAuto the German automaker is “in constructive dialogue with our partner Avtotor and the competent authorities about the long-term development of our production in Russia.

“(But) please understand that it is currently too early to talk about results,” she adds. “There are still no final decisions and important details are still being clarified.”

Avtotor launched SKD assembly of BMW cars in 1999. It celebrated the 100,000^th BMW built in Kaliningrad in August.

In addition to Avtotor’s current contracts, Land Rover and Subaru vehicles also are expected to be assembled in the new factories. Previous reports indicated both automaker were considering local production in Russia and eying Avtotor as a possible partner. Although final agreements probably are not signed, Avtotor’s presentation to the media indicates both projects remain alive.

Magna, GKN, Johnson Controls, Eberspächer, Lear and Fagor are mentioned as foreign suppliers expected to locate operations at the site. However, it is unclear whether any deals have been inked.

A spokesman for Johnson Controls tells WardsAuto there are negotiations about part production at the cluster, but no final decision has been made.

In related news, the Interfax news agency reports Avtotor will launch CKD assembly of Kia vehicles soon, quoting sources at the Russian company. CKD assembly of the Kia Sorento is expected to start in early November with the Kia Cerato to be added in 2014.

Currently, all cars made by Avtotor are assembled from semi-knocked-down kits. However, Avtotor has built vehicles from CKD kits before, including a previous-generation Kia Sportage and, until recently, the Chevrolet Lacetti.

Last year, Avtotor produced 249,635 cars, mainly from SKD kits. The figure includes 91,285 Kia, 85,489 Chevrolet, 48,489 Opel, 23,001 BMW and 1,377 Cadillac vehicles.

It plans to build 224,000 to 230,000 cars this year, Avtotor Managing Director Valery Gorbunov tells the Finmarket news agency.