Like a child in a playroom full of beautiful but broken toys, Alexander Muhin wears an expression that's not hard to read on this July day. Surrounding the frustrated production manager in long rows radiating across a cavernous workshop is an army of distressed Japanese robots.
Once used to build Sebring sedans at a Chrysler plant in Michigan, the robots--all 310 of them--seem to be screaming in metallic pain here in their new home on the other side of the world. In the months ahead, it's Muhin's job at the GAZ Group's car plant in Nizhni Novgorod to get them singing again. Stooping to reach beneath a nearby machine, Muhin grasps a thick power cord housing scores of crudely severed control wires. "I guess they were in a hurry when they packed them up over in Michigan," grouses Muhin in an unexpected departure from the cheerful confidence of a man atop one of Russia's most famous proletarian pyramids. "The problem is," he says, "we don't have the repair documentation."
A lesser man than Muhin, who has logged 43 years at GAZ, would have petitioned for a pension last year on hearing of a startling plan to match up GAZ--one of Russia's two largest carmakers and for decades an icon of Russian industrial self-reliance--with Aurora, Ontario-based Magna International. One leg of the plan is a drive to transplant Sebring production into GAZ's massive, dilapidated sprawl of Soviet-era car and truck factories along the banks of the Volga River, 500 kilometres east of Moscow. Inspired by Magna, which is one of Canada's great industrial success stories, GAZ's directors say their company can only regain its once-cherished place in Russia's motor-loving soul through radical restructuring and modernization. They want Magna--which employs 83,000 people in 23 countries and acts as a parts supplier and vehicle builder for almost every carmaker worldwide--to salvage GAZ from collapse. And they want it done with stunning speed. They're in a race for Russian market share that both companies are taking extreme measures to win.
It started with a shotgun marriage. Just around the time the robots appeared in Muhin's shop last spring, GAZ's parent company, Russian Machines, invested $1.6 billion in Magna (market value $10 billion). The deal handed six of Magna's 14 board positions to Russia's most powerful industrialist, 39-year-old Oleg Deripaska, whose Basic Element consortium controls Russian Machines. The arrangement--which gives Deripaska decisive influence over Magna's future in return for an investment totalling less than 20% of the company's market value--was just the latest master stroke for a takeover genius who stitched up many of Russia's heavy industries while still in his early 30s.
Magna officials describe Deripaska--who boasts the sine qua non of Russian business, excellent connections to Vladimir Putin's government--as a "strategic partner" who will give Magna access to car-crazy Russia. Counterparts at Russian Machines claim Magna's world-beating prowess building parts and assembling cars will help them revive a Russian car industry reeling in the face of heavy pressure from imports. Possibly confirming suspicions in Canada that Stronach has effectively surrendered control of Magna--later if not now--the Russians also say they generally go for controlling stakes when doing partnership deals like the one they've crafted with Magna.
Both companies say the plan is to start building the Chrysler Sebring in Nizhni Novgorod by mid-2008, using parts imported from North America. They'll then set up a series of plants that will build parts for the Sebring and the models of other Russian manufacturers. As the industry modernizes, GAZ and its influential owner will serve as Magna's local host while it pursues business with the strategies it honed with great success elsewhere around the globe. By 2010, Magna, working with GAZ, aims to supply $1,000 worth of parts for every vehicle built in Russia, generating at least $2 billion a year. How Magna will produce cars without alienating its parts customers remains to be seen; likewise, it's unclear how many contracts Deripaska himself will deliver. But Magna chairman and founder Frank Stronach boasts that he secured personal approval from President Putin before signing the deal--which includes a $150-million payment from Russian Machines to Stronach's personal consulting company, along with substantial rewards for other Magna insiders.
After pivoting Magna's future from Detroit to Nizhni Novgorod, Stronach, 74, offered a characteristically epigrammatic explanation to the many skeptical investors and analysts scrambling to keep up with him. The new slogan at Magna, says Stronach, is "Let's build jeeps in Russia." Yet, as he set out to conquer Russia, Stronach also handed over the keys to the company--now Canada's sixth largest, with $20 billion in annual sales--that he launched from a Toronto garage in 1957.
