Ford Motor Co. (F) has finalized a deal with Russian automaker Sollers to form a 50/50 joint venture (JV), initially announced in February this year. The Ford Sollers JV will manufacture and sell cars and commercial vehicles (including the Ford Transit van) in Russia.
Both companies have lined up $1.4 billion in long-term financing from the Russian development bank, Vnesheconombank, for the JV.
The JV, scheduled to start operating in late 2011, will produce 350,000 vehicles per year by 2014 in order to take advantage of a government incentive waiving import tariffs on components. The vehicles will be produced at Ford’s own plant near St. Petersburg and two Sollers-owned plants in the Republic of Tatarstan.
Ford’s existing plant in Russia manufactures Focus compact and Mondeo midsize car with a capacity to produce 125,000 vehicles per year. In 2010, the automaker sold 90,000 vehicles. Meanwhile, Sollers became the second biggest automaker in Russia after AvtoVAZ by selling 98,000 cars and light commercial vehicles in the same year.
Ford began selling cars in Russia in 2002. Its expansion plan in the country is perfectly in line with its strategy to expand global sales by 50% to 8 million vehicles by 2015, given the potential growth in Asia.
According to the Moscow-based Association of European Businesses, car sales in Russia escalated by 30% to 1.9 million units in 2010. Further, it is expected to increase 19% to 2.35 million units in 2011.
Apart from Ford, Toyota Motor Corp. (TM”>TM) plans to enter a tie-up with Sollers and Japanese firm Mitsui & Co. to assemble and sell passenger vehicles in Russia. The vehicles will be manufactured at Soller’s plant in Vladivostok.
Toyota intends to provide parts and train personnel for the production. Meanwhile, Sollers and Mitsui will assemble the vehicles at the factory in a 50-50 joint venture. The tie-up will produce either a sedan or a sports utility vehicle designed by Toyota. The Vladivostok plant will be upgraded in order to assemble about 30,000 vehicles annually.
A few months back, Italian automaker Fiat SpA (FIATY) backed out of a partnership with Sollers to produce up to 500,000 vehicles per year.
Ford, a Zacks #3 Rank (Hold) company, posted a roaring 48% rise in profit to $2.61 billion in the first quarter of 2011 from $1.76 billion in the same quarter of 2010. On earnings per share basis, profits rose 35% to 62 cents per share from 46 cents per share a year ago, thereby topping the Zacks Consensus Estimate by 12 cents per share.
It was a turnaround performance with respect to the fourth quarter of 2010, when the automaker recorded a 24% fall in profit. However, the company did not deprive its stockholders from enjoying a profit for seven straight quarters after years of losses. In fact, it posted a profit during the quarter that was the best since the same quarter in 1998.
Total revenue during the quarter escalated 18% to $33.1 billion, surpassing the Zacks Consensus Estimate of $30.5 billion. The increase in revenues was attributable to a 12% rise in sales to 1.40 million vehicles.
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