Land Rover kits to be built on the Baltic

THE GUARDIAN
By Tom Whitehouse in Moscow

The classic Land Rover is to be assembled in Russia to cater for the booming demand for vehicles capable of negotiating its appalling road network. Kit versions of the car, which has not changed much since it was first built 50 years ago, will be put together in Kaliningrad on the Baltic coast.

This is the second time Rover has ventured into the former communist bloc. The last venture, to assemble Rovers in Bulgaria, fell apart when the head of the project died in a car crash.

BMW, Rover's parent company, has decided to build around 10,000 BMW 5-series and Land Rover Defenders in a DM125 million (£43 million) joint venture with Avtotor, the Russian car maker, this summer, taking advantage of the large pool of cheap and highly skilled workers.

The Defender is built in Rover's Solihull factory which last year made around 170,000 Land Rovers. The factory is regarded as the jewel in Rover's crown and is not affected by the problems over the Longbridge plant. BMW is in negotiation with the Government for state aid to ensure the factory stays open and save 17,000 jobs in the Birmingham area.

This is not the first time Rover has allowed its best selling Land Rover to be built overseas. There are similar operations in Turkey, Morocco, Malaysia and South Africa. Despite Russia's economic recession, BMW expects demand for cars to increase by 50 per cent over the next three years. Around DM50 million will go into a new assembly line. The remaining DM75 million will be spent on a distribution network. Up to 1,500 jobs will be created.

The Kaliningrad region's reduced customs are the main attraction for foreign investors. By having a Russian base, BMW will gain a cost advantage over its main competitors, Volvo and Mercedes. It also has an ice-free port and low-wage workforce on hand.

An enclave cut off from Russia proper by Lithuania and Belarus, Kaliningrad has been billed as Russia's 'Hong Kong on the Baltic'. The regional government has tried to make a virtue of the its isolation from Russia proper by giving special tax privileges to foreign investors. However, results have been mixed.

The Korean manufacturer, Kir Motors, which moved into Kaliningrad three years ago with a multi-million dollar investment, allegedly fell out with the regional authorities. Both sides accuse each other of breaching obligations.

Kaliningrad may have a different customs regime to the rest of Russia, but it shares many endemic problems, chiefly corruption. A similar foray by Ford also proved disappointing. Russians prefer more expensive imported models to the Chevrolet Blazers produced in Tartarstan because of fears about quality. 'Made in Russia' is regarded by many there as a guarantee of poor quality.