Why GAZ Is Pinning Its Hopes on Opel

The ailing Russian automaker is a key player in the buyout of GM's Opel unit in Germany. But it's really GAZ that is looking for help from Opel

By Matthias Schepp

Not far from the "Motor of the Revolution" metro station a huge billboard advertises a "legendary automobile factory." Portraits of the company directors who have headed Russia's second largest automaker since 1932, beam down from between red stars. A huge speedometer hits 80, 100, 120 kilometers per hour—and then abruptly jumps to 300.

The ambitions of the Gorky Automobile Plant (GAZ), located around 400 kilometers east of Moscow on the outskirts of the city Nizhny Novgorod, were always oversized. Over 17 million cars have rolled off the assembly line here. Stalin would personally choose the names for the newest models. He rejected "homeland"—because who wanted to measure that in terms of money and sales? Pobeda, Russian for "victory," was the name given to a functional passenger car designed in 1944. A mosaic in front of the factory entrance still announces a "victory in the socialist competition."

But capitalism has not been kind to the long-established company. Since the end of the Soviet Union, the number of employees has shrunk from 110,000 to 40,000. Reduced working hours, lay-offs, flawed production policies and debts exceeding a billion euros all plague the company. And this, of all companies, is to be the savior for German automaker Opel?

GAZ (GAZA.RTS) touts itself as an "industrial partner" of the Russian state bank Sberbank and the Austrian-Canadian supplier Magna (MGA), which is to acquire 55 percent of Opel's shares. The biggest part of that majority stake, 35 percent, will go to the Russians. The buyers, Opel's American parent company GM, and the German government have agreed on that much—the details, though, still need to be negotiated.

There are now increasing doubts about whether the deal will go well and whether a supplier can really help Opel. And the biggest concern of all is whether the Russian automaker can contribute when it needs help itself.

On July 24, 2008, the GAZ directors led three men through their realm who would later work hard towards securing the Opel deal: Prime Minister Vladimir Putin, who wanted to bring Russia's auto industry to a world-class level with the help of foreign partners, Magna founder Frank Stronach, who was in pursuit of his own automobile production, and GAZ principle stockholder Oleg Deripaska who, back before the financial crisis, dreamed of becoming the world's richest businessman. The trio combined exceptional creative power with a penchant for megalomania.

Andrey Slepushkin, an energetic production director in his mid-30s, has been pegged to perform a sort of miracle—turning a factory that recently was at an 1980s-level of technology into a platform that will launch Magna's bid to conquer the east. Magna believes there is great potential to increase Opel's low market share in Russia from 3 percent to 20 percent. A new plant, which produced the sports utility vehicle Opel Antara not far from St. Petersburg, would be too small for such growth.

Slepushkin has worked in General Motors factories and speaks outstanding English, much to the enchantment of Magna workers on site. In one and a half years, he managed to assemble a $290 million production facility which had been purchased in the US and brought to Nizhny Novgorod for producing Chrysler Sebrings.

Blind to the Desires of Its Customers

The engineer is proud of high-tech robots that apply adhesive to rear windows before carefully putting them in place. "In Russia, this level of automation is only available with us—just like at Opel in Rüsselheim," he said. He uses these kinds of phrases over a dozen times to envision the future collaboration. Quality control, computer-controlled precision—everything like at Opel. Andrey and his bosses leave no room for doubt that "in about nine months, we will be ready to switch from Volga production to an Opel brand."

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