GM sees first Russian-built SUVs in September

General Motors started building a new car plant in Russia on Tuesday as it faced strikes in western Europe by workers convinced it will shift production to low-cost eastern Europe.

GM said it would invest $115 million to build the Chevrolet Captiva SUV and a yet-to-be-named compact car at a plant in St. Petersburg that will start production in late 2008 and have annual capacity of 25,000 vehicles.

"This project clearly demonstrates our commitment to Russia as one of the world's fastest-growing auto markets," GM CEO Rick Wagoner told a ground-breaking ceremony at the greenfield site in Russia's second city. "With the addition of this new, wholly owned facility, GM and its partners will be able to assemble more than 100,000 cars a year in Russia."

The investment in Russia's booming market comes as labor unions at GM's western European plants launched a wave of strikes. Workers at GM's Portuguese plant in Azambuja downed tools first amid fears the plant would close.

GM Europe President Carl-Peter Forster denied plans to shift production, however, saying the company was producing different models for different markets.

"The fact that we have to deal with some restructuring in western Europe has nothing to do with building this plant," Forster told reporters. "It is a very different environment. We foresee a lot of growth in the future."

First captiva in september

GM, which put the diesel-powered Captiva on display at the Geneva motor show in March, should produce the first models for sale in the Russian market this September at a separate assembly plant, also in St. Petersburg.

Initial output at the transitional facility will be 1,000 units per year, rising to 4,000-5,000. This plant will close when the bigger facility is up and running.

GM did not unveil the "new generation of compact cars" it aims to build at the plant, where it will create 700 jobs.

But Forster did say it would be a C-segment model, or compact sedan. A third model may be built at the new plant depending on market conditions.

GM already builds Chevy Niva SUVs and Viva saloons together with Russia's AvtoVaz, while Russian car manufacturer Avtotor assembles Cadillacs, Hummers and Chevrolets under licence in Russia's western enclave of Kaliningrad.

Forster forecast annual growth of 10-20 percent in the Russian car market, outstripping growth in mature western European markets of 1, 2 or at best 3 percent.

"This (Russia) will be a 1.7 million (units) market this year. This could be a 3 million market in a couple of years and growing from there," said Forster.

GM said its sales in Russia reached 11,000 units in May, up 80 percent year-on-year. Vehicle ownership in Russia, a country of 143 million, has now reached 178 per 1,000 people, still low by European standards.

Moving into russia

Also on Tuesday, Nissan Motor Co. signed a deal with the Russian government to build a $200 million plant in St Petersburg. Nissan aims to produce 50,000 cars a year by 2009 at its first Russian plant, the company said at a signing ceremony attended by CEO Carlos Ghosn and Russian Economy Minister German Gref.

Ghosn said Nissan would start building the plant in 2007, and decide on the range of vehicles in 2008. "We are planning to produce one SUV, one sedan, and we are still evaluating the options for a third car," he told reporters.

Gref said Russia could lure three to five more car producers onto its market by the end of the year, when a window to offer concessionary investment terms is likely to close as Russia eyes entry into the World Trade Organization.