Fiat Cancels Plans to Build Plant in Nizhny Novgorod

Italy’s Fiat has abandoned plans to set up a car plant in the central Russian city of Nizhny Novgorod and is considering the Caucasus or St. Petersburg as alternative production sites Kommersant business daily reported.

The paper quoted market sources saying Russia's top lender Sberbank, Fiat's potential creditor, has proposed reviving the Derways plant plant in the Karachayevo-Cherkessia republic in the north Caucasus. Fiat wants to build the plant in St. Petersburg, where Ford, Toyota, General Motors, and Nissan have already placed their Russian operations.

Fiat abandoned the Nizhny Novgorod plan after failing to agree with Russian car manufacturer GAZ Group, which recently signed assembly contracts with Volkswagen and GM for a total of 140 thousand units annually.

Fiat signed a $1 billion agreement on June 24st with Russia's Economic Development Ministry to produce 120,000 cars a year and construct an engine plant in the country.

One market source told Kommersant that Sberbank insisted on Derways because the bank's investment subsidiary Sberbank Capital owns a 51% share in the plant, received in exchange for a RUB 1 billion loan.