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Automotive production is expected to be the rare good news for manufacturing in July statistics.

� Herwig Prammer / Reuters/REUTERS

Magna International Inc., sharpening its focus on the fastest-growing auto markets, has taken a key step toward assembling vehicles in Russia.

The Canadian auto parts giant has applied for a permit that would allow it to produce 300,000 vehicles annually in Russia, if it wins contracts to assemble vehicles on a contract basis for its customers. Through its Magna Steyr operation in Austria, it is already the largest contract manufacturer in the world, assembling vehicles for Mercedes-Benz, PSA Peugeot, Minis for BMW AG, and others.

Magna joins a throng of auto makers that met a deadline this week to apply for tariff exemptions that allow them to import cars or parts duty free into Russia, in return for assembling at least 300,000 vehicles annually in what is expected to be one of the world's hot markets later this decade.

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If Magna wins contracts with auto makers to assemble vehicles for them in Russia, "we'll have the ability to import components for the manufacturing of these vehicles on a duty-free basis or duty-preference basis," Vince Galifi, Magna's chief financial officer, said Wednesday.

"We want to make sure that we've got all the flexibility we need if there's an opportunity for us," Mr. Galifi said, adding that so far it has not landed any contracts to assemble vehicles in the country.

But the application is another sign of Magna's increasing focus on markets outside its long-time bastions of Canada, the United States and Western Europe and its belief that growth lies in the BRIC countries - Brazil, Russia, India and China - and Mexico.

"We are interested in the BRIC countries, including the R," Mr. Galifi said. "We view Russia as a developing market, one where the supply base is still in its infancy."

Fiat SpA said last week it has applied for a permit to assemble vehicles for its own brands and Chrysler LLC's Jeep brand.

Ford Motor Co. submitted an application for a joint venture with Russian auto maker Sollers, which was Fiat's partner in a proposed assembly operation.

Magna is likely to hook up with Russian companies Avtovor or OAO Gaz in Kaliningrad, said industry consultant Warren Browne, a former head of Russian operations for General Motors Co.

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Gaz is controlled by Russian oligarch Oleg Deripaska, who bought a 42-per-cent stake in a holding company that controlled Magna in 2007, but was forced to sell it in 2008 when he faced a cash crunch during the global credit crisis. The arrangement with Mr. Deripaska was supposed to be Magna's original springboard into Russia, but hopes of using that partnership dissolved with the crisis, which helped cause the collapse of the Russian auto market.

But another opportunity arose when General Motors Corp. put its Opel division up for sale and Magna teamed with Sberbank of Russia to take control of the troubled unit.

The Magna-Sberbank bid won the blessing of the government of Germany, where Opel's key operations are located, but GM cancelled a plan to sell Opel late in 2009 after emerging from Chapter 11 bankruptcy protection.

Russia is raising the requirement for local content for vehicles made in the country to 60 per cent from 35 per cent.

Auto makers can't reach that level unless they manufacture engines in Russia, Mr. Browne said.

The Russians "look at China and are worried," he said, because China has established thriving engine and components operations to go along with the massive investments auto makers have made in what is now the world's largest market.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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