Following on from a wide-ranging Memorandum of Understanding signed with Avtovaz in October, Fiat is now actively considering making a financial investment in Russia's biggest carmaker. Photo: Lada at September's Frankfurt IAA.

Following on from a wide-ranging Memorandum of Understanding signed with Avtovaz in October, Fiat is considering making a financial investment in Russia's biggest carmaker. "This is a company that needs bringing back to health," Fiat CEO Sergio Marchionne told reports yesterday, reported the Reuters news agency. "So what would be needed from Fiat should not to be underestimated and goes beyond the investment it would need." He added that it would "open up an enormous market, including ... development of joint platforms with them. It would be a big step forward. We are looking at it, then we'll see."

In mid-October Fiat and Avtovaz announced the signing of a Memorandum of Understanding as the basis for the establishment of cooperation initiatives aimed at supporting the expansion of Avtovaz in the area of passenger cars encompassing engineering and technological processes, development, manufacturing, product sourcing, engines and other components. Fiat Group’s involvement in the development of the Fiat brand in Russia based on prior agreements with other parties continues strong and is not affected by this MoU.

Russia is expected to grow into Europe's biggest new vehicle market within the next five years, and the major car manufacturers are all rushing to tap into this lucrative scenario. Avtovaz has slipped in recent years due to a lack of planning, direction and investment, and is now seeking outside suitors to bring experience, technology and finance. As well as Fiat, Avtovaz is in on-going discussions to sell a minority stake with General Motors and Renault, a winner expected next month.

Avtovaz has had a long relationship with Fiat, ever since it was set up in the late 1960s with the Turin carmaker's close assistance. The company launched car production under the Lada name using a revised version of the Fiat 124, with basic specification and toughened up for the harsh Russian roads. The factory was based at Togliatti, which was named after a Russia communist. Today the Lada factory is one of the largest in the world with production capacity of 750,000 vehicles annually, 90 miles of automated production lines and a shop floor of 22.5 million sq feet.

Cars currently built by Lada include the quarter of a century old Samara; the Kalina, introduced in 2004 in hatchback, saloon and estate format; and the Niva 4x4, which is mostly unchanged after three decades in production and is Russia's off-roader of choice, and is also the mechanical basis of the Chevrolet Niva, part of a joint venture Avtovaz has with General Motors. Avtovaz is considering building on this joint venture relationship with GM, and is in on-going talks that could see it build either the Opel Corsa or Astra at its factory.