MOSCOW, Sept. 23 (UPI) -- General Motors and Russia's largest car manufacturer, AvtoVAZ, proved pessimists wrong Monday by achieving what was once considered unthinkable -- opening a joint production facility that will churn out thousands of sleek new sport utility vehicles.
"We want to see this plant produce high-quality vehicles and become as efficient as any GM facility in the world," GM Chairman John Smith said at Monday's opening ceremony in Togliatti, Russia's Detroit.
With the U.S. ambassador looking on, AvtoVAZ chief executive Vladimir Kadannikov enthusiastically declared that "the Russian car industry is entering a new phase of development."
The new production facility will build 35,000 Chevy-Niva all-terrain vehicles next year, of which 5,000 will be sold abroad. Production is set to rise to 75,000 vehicles a year.
Officials said the new plant would employ 1,200 people, rising to 2,000 as production increases.
The first car off the line Monday was blessed by a Russian Orthodox priest, who sprinkled it with holy water, and was promptly purchased by local governor Konstantin Titov.
Taking into account the average Russian's meager income and comparatively low purchasing power, local dealers will sell the Chevy-Niva for the equivalent of $8,000, while its price in Europe will be around $16,000.
General Motors briefly entered the Russian auto market in the early 1990s, establishing an assembly plant in the Ural Mountains that produced a limited number of Jeep Cherokees from parts imported from Brazil.
Last year, GM signed an agreement with AvtoVAZ, which manufactures about 70 percent of the automobiles produced in Russian, to form a joint venture, investing $100 million in the new production facility.
Aware of the risks of investing in Russia, GM, which controls 41.5 percent of the joint venture, signed a deal with the European Bank for Reconstruction and Development as an additional guarantor for the business.
The bank agreed to invest $40 million of its own money for a 17 percent stake in the project, and provided almost $100 million in loans.
While GM rival's Ford Motor Co. has already opened a $450 million production plant in northwest Russia that will build 45,000 Ford Focus cars a year, GM opted to help AvtoVAZ develop a Russian-based product with help from designers and engineers from GM's European subsidiary Opel.
Smith called Russia "one of the six most promising emerging world markets for auto vehicles," adding that he believed the country would experience remarkable growth over the next 10 to 20 years as a new middle class emerges in Russia.
AvtoVAZ was built in the 1960s to produce a Soviet version of Italy's Fiat-124, the Soviet Union's first modern-era car. The first production line was built with the help of Fiat engineers, and the town where most plant workers lived was named Togliatti after the leader of the Italian communist party.
AvtoVAZ still produces updated versions of the original Fiat, but has had trouble bringing out new models.
The federal government, pressured by AvtoVAZ management which had found it hard to compete against imports of used western cars, has slapped prohibitive import duties on old Fords, Volkswagens and Toyotas flooding into Russia, making the rickety Lada -- AvtoVAZ's main mass-market product -- more attractive, at least financially.
Other foreign manufacturers have looked at the Russian market, but few have been able to bring their projects to life as they search for a reliable local partner or encounter daunting amounts of red tape.
Renault and Toyota are still planning limited production of their cars in Russia, and BMW has a small assembly plant running, but Fiat and Volkswagen have put their projects on ice after calculating that the cost of making their mid-range cars in Russia would make the vehicles too expensive for the average Russian.