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. Last Updated: 07/27/2016

Severstal-Avto to Invest $30M to Kickstart Fiat

Severstal-Avto said Monday that it would invest a total of $30 million over the next three years to meet the terms of its recently signed licensing agreement with Italian carmaker Fiat.

The first Fiat models produced under the agreement -- the Palio and Albea -- are set to come off the production line as early as December, Severstal spokesman Andrei Koterev said Monday.

Both Fiat and Severstal-Avto have declined to disclose the financial terms of the deal, which is aimed at increasing the companies' share in the growing Russian car market.

Under the deal, Severstal-Avto will work as Fiat's exclusive distributor in the Russian market, where fewer than 100 Fiat models were sold last year. Severstal-Avto plans to increase that figure to 2,000 this year, it said in a statement.

Of the $30 million investment, around $18 million will be spent this year on upgrading Severstal's production plant in Naberezhniye Chelny, in Tatarstan, where the Fiat models will be produced, Koterev said. By 2008, Severstal-Avto says it will be producing 20,000 Albea sedans and 10,000 Palio hatchbacks annually, Koterev added.

The company is also negotiating to produce 10,000 Fiat Doblo models per year, Interfax quoted company general director Vadim Shvetsov as saying.

The remaining $12 million will go toward marketing the entire range of Fiat models from now to 2009, Koterev said.

Fiat's deal with Severstal-Avto is part of its drive to increase sales in a number of emerging markets, including Turkey, Brazil and India.

Both the Albea and the Palio are targeted at emerging markets, Koterev said. Under the Severstal-Avto deal, the parts for both models will come from Tofas, Fiat's joint venture in Turkey.

The Albea will be sold for around $12,000, with local production cutting $2,000 off its sale price, Koterev said.

Targeted at the country's growing middle class, the Albea and Palio models should sell well, as they fit into "the fastest-growing segment of the passenger car market in Russia," brokerage UFG said in a recent research note, adding that they would help create brand awareness for Fiat.

The Fiat brand has had something of an image problem in Russia, analysts say.

At a time when most foreign cars are enjoying strong growth, Fiat's sales remain meager, which some analysts attribute to the lack of a marketing campaign.

The Italian carmaker's partnership with Severstal-Avto is Fiat's second attempt to gain a foothold in Russia. In 1997, Fiat agreed to make passenger cars with GAZ, but the 1998 financial meltdown thwarted those plans.

Severstal-Avto, part of the country's third-largest steelmaker, Severstal, already makes the Rexton SUV model for South Korea's SsangYong at its plant in Tatarstan.