GENERAL MOTORS' pending deal with AvtoVAZ in Russia suggests a new way to enter an emerging market.
Talks between GM and the maker of Ladas have dragged on for about a decade. But the two sides began making progress several months ago when negotiations turned to the idea of producing a cheap vehicle engineered by AvtoVAZ.
An earlier plan in Russia copied other GM deals in developing markets. An Opel model (in this case the Astra) would have gone into local production, relying heavily on engineering support from Germany.
The new plan still calls for production of a low-cost Astra. But the main model to be built at a new lean plant in Togliatti, Russia, would be an updated Lada Niva off-roader.
Most engineering work would be done by AvtoVAZ, putting less pressure on Opel resources in Germany. Those resources were strained when GM went into emerging market overdrive a few years ago. The resulting turmoil was a disaster for GM Europe.
David Herman ran Opel at the time. Now he is in charge of GM's operations in the former Soviet states and must himself rely on Russelsheim's technicians. Possibly due to his unique perspective, he is doing things differently in Russia.
'This is the first time we are going to an emerging market and someone with engineering capability is offering us a vehicle that gets to the heart of the market,' he said.
Herman said the old way - building a western vehicle in a new plant and selling it at a relatively high price - is 'not a good philosophy.'
Not only does the pending deal in Russia reduce strain on Opel, it minimizes culture shock between partners. And a low-price Niva also puts GM in the middle of the Russian market.
General Motors has still not unraveled Russia and other countries in the region. The Niva deal isn't done yet and AvtoVAZ is not the most stable of partners. Russia's biggest carmaker has been accused by the government of large-scale income tax evasion.
Meanwhile, GM's Chevrolet Blazer assembly deal in the ex-Soviet Republic of Tatarstan has all but collapsed.
But as the dust settles from Russia's 1998 currency crisis, carmakers must look eastward again. BMW's new '2 series' plant will probably be built in central Europe; VW will produce its new luxury sport-utility vehicle in Slovakia and its D1 luxury car in eastern Germany.
Despite the risks, the regions of central and eastern Europe provide the most attractive growth opportunities for European carmakers in the first decade of the new century.