General Motors Corp. yesterday signed a $1 billion agreement to sell antipollution devices to the Soviet Union, making it the first U.S. car company to finalize a business agreement with the Soviet government.
The contract with state-owned Volga Auto Works (VAZ), the Soviet Union's biggest automaker, could give the Soviet Union the auto-emissions control technology it needs to make one of its most popular cars, the Lada, marketable throughout Europe.
Although the agreement is spread over seven years, its total value of $1 billion is substantially larger than most U.S.-business agreements that have been signed to date with the Soviet Union. Much of the Soviet Union's current estimated $5 billion trade with the United States involves commodities and non-cash transactions.
GM will be paid in U.S. dollars and will receive bank-certified letters of credit for most of its business with VAZ, and transactions will be handled on a pay-on-delivery basis, GM officials said. Research and development work related to the contract is to be paid in advance.
GM's aggressiveness in pursuing business in the Soviet Union and in unexplored markets in Eastern Europe is fraught with risks, according to some auto industry analysts.
"It gets their foot into the pool, but they shouldn't get too excited about it," said J. Gerard Paul, an analyst with Sanford C. Bernstein & Co. in New York.
"There are a lot of things that have to be worked out," such as establishing prices and the operating conditions of the deal, Paul said. "It is not clear" that the deal will prove profitable for GM, he said.
Indeed, other U.S. companies have found it rough going with the Soviets. Ford Motor Co., for example, tried in the early 1970s and again in 1988-1989.
The company, America's second-largest automaker behind GM, backed out both times, essentially because of financial and political concerns.
But with improvements in U.S.-Soviet relations, and the move toward democracy and capitalism in Eastern Europe, other analysts say that the first American automaker to take advantage of those changes will be the first to reap long-term benefits.
"It's a $1 billion risk; but it's the kind of risk that American industry is going to have to take if it is going to react to a changing world," said Arvid Jouppi, an analyst with Keane Securities in Detroit.
GM also has agreed to a vehicle-production venture with Automobilwerke Eisenach in Eisenach, East Germany; it also plans to build engines and cars in cooperation with Hungarian automaker RABA.
The Soviet Lada is a subcompact car primarily sold in the Soviet Union and Eastern Europe now. But in an effort to make it more marketable in countries with stiff environmental controls, the Soviets need updated technology to meet those standards. The Soviets hope to be ready to take advantage of a unified European market scheduled to come about in 1992.