THE SOVIET FIAT MAKES ITS APPEARANCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010009-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 9
• Publication Date: April 1, 1971
• Content Type: IM

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Confidential
DIRECTORATE OF
INTELLIGENCE
DOC[I?1aiT SEW~~ JCH
DO NOT LESTROy
Intelligence Memorandum
The Soviet FIAT Makes Its Appearance
Confidential
ER IM 71-58
April 1971
Copy No. j; ti
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
Excluded from outommk
downgrading and
deela916ta11on
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
April 1971
INTELLIGENCE MEMORANDUM
The Soviet FIAT Makes Its Appearance
Introduction
1. The USSR, which traditionally has produced
relatively few passenger cars, launched a priority
program in 1966 designed to boost their production
by 1975 to a level of about five times the 1966
output, or 1.2 million cars. The keystone of this
program is the Volga Motor Vehicle Plant (VAZ) at
Tol'yatti on the Volga, being built and equipped
as a joint effort of the USSR and FIAT of Italy.
This plant, the largest cooperative undertaking
between a Western firm and a Communist country,
will have cost about $1.5 billion at completion --
nearly double the original estimate. Of the total,
about $500 million has been spent in Western Europe
mainly Italy, and about $50 million in the United
States.
2. This memorandum describes the status of
the VAZ plant, current problems in bringing it in-
to full production, and its significance for the
Soviet passenger car program.
Discussion
Goals and Achievements
3. The original construction schedule for VAZ
provided for initial production by the end of 1969,
200,000 cars in 1970, and output at full capacity
of 600,000 cars per year by 1972. Despite the
project's high priority and strenuous efforts by
Note: This memorandum was prepared by the Office
of Economic Research.
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both Soviets and Italians, there was a slippage of
about ten months (from December 1969 to September
1970) in the initial startup time. Among the dif-
ficulties which the builders had to surmount were
unusually severe winter- weather, lack.of housing,
and difficulty in attracting-,and holding labor.
Much work remains to be done, and- full capacity
production may be as far away- as.197.4 or 1975.
Meanwhile, Soviet officia?ls.,have- expressed satis-
faction with FIAT performance and have accepted
the responsibility for delays in completing and
equipping the plant.
4. When the initial startup date could not be
met,~a special effort was?made.to ready the plant
for a spectacular opening-on Lenin's 100th birth-
day in April 1970. When this date also proved
impossible to meet, formal dedication of the plant
was indefinitely deferred until it is completely
finished, which will probably be in late 1971 or
early 1972.
5. Of the three assembly lines provided for,
only one line is operating at the present time.
From startup in September 1970 until the end of the
year, it produced 22,000 cars (designated model
VAZ-2101, or "Zhiguli"), reaching a daily rate of
about 250 by December. Plant officials expect to
reach a daily rate of about 400 cars by April 1971
and to produce 160,000 cars in 1971. These goals
seem realistic in view of current performance. A
recently announced goal of 320,000 cars for 1972,
implies that the plan is for the second assembly
line to be in operation early that year, the full
capacity of each line being 200,000 cars per year.
The third assembly line, to be equipped with machin-
ery manufactured in the USSR and Eastern Europe, is
not likely to operate before 1973. FIAT has not
contracted any obligations for this line, and little
is known about plans for setting it up.
6. At the present time, a number of expedients
are being used to keep the final assembly line
operating. Many of the subsidiary lines are not
functioning yet, and various makeshift systems are
delivering components to final assembly. Almost
all parts except body parts were supplied by FIAT
from its plants during the first months of operation,
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but parts made in the USSR and Eastern Europe have
gradually become available. .Suppliers in Eastern
Europe began-making deliveries-of-parts during
1970. 'Soviet suppliers-have-been less successful
in-meeting their commitments.
Factors- Affecting' Goal', A'chiev'emeht
7. Successful operation of-the Tol'yatti plant
and its progress: toward' full capacity output depend
in.large part on: Soviet ability. to. master the pro-
cess technology'in six-major'shops, all of which
now are in-partial operation. The experience of
Western technicians,. who are-.assisting and training
the Soviet.workers?.during.the..period of installa-
tion and startup of the shops, indicates that
production problems'are likely to persist for some
time. Most of the production workers have had
little prior experience in the use of machinery
and tend to be careless in operatin and maintain-
ing the lines. 25X1
they persist in obstructive practices such as shut-
ting down conveyors unnecessarily in order to make
manual adjustments.
8. Some shops have been brought into produc-
tion sooner and more completely than others. The
body-stamping shop, equipped with heavy presses
built in Italy, was one of the first shops in suc-
cessful operation and has supplied most, if not
all, of the stamped body parts. The grey iron
foundry, on the other hand, has been slowest in
getting started and has been a serious limitation
on operations. The four US-built foundry lines
were ready for operation in September, but molding
boxes* ordered from Poland were not delivered. For
a period of six months, castings had to be supplied
by FIAT, causing an unexpected strain on their
foundry facilities in Italy. Eventually the Soviets
acquired enough molding boxes from domestic produc-
tion to equip one of the foundry lines.
9. A serious problem has developed ire schedul-
ing the flow of components because the computer
system of production control is not in operation.
* A molding box contains the sand mold into which
molten metal is poured to form a casting.
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The building designed to house the computer center
is not finished, and the Italian-built equipment
is in storage. As a temporary measure, small US
computers have been bought to use in inventory
control, and Italian specialists, working with the
Soviets on programming, anticipate serious prob-
lems later on in combining the temporary and perma-
nent systems.
Vendor Plants in the USSR
10. Steadiness in the operation of the assembly
lines at Tol'yatti depends on the timely receipt
of many parts and components supplied by vendor
plants that, like the VAZ plant, are newly con-
structed for this purpose. Many of these plants
have been late getting started, and defects in
their early products have seriously slowed assembly
rates at VAZ and have contributed to the need to
import more Italian FIAT parts than was originally
anticipated. For example, the Balakovo plant for
rubber parts and fittings, which was built with
the technical assistance of the Pirelli rubber
company of Italy is not in operation, and the Volzh-
skiy Plant has been delivering rubber fittings to
VAZ which are exceptionally difficult to bond to
steel. A new plant in Kursk delivers oil seals
that break during ins tall _ti'n. The new antifric-
tion-bearing plant at Vologda, designed and built
by the USSR, is not yet finished, and it has been
necessary to obtain bearings from other plar:ts or
to import them. Other new Soviet vendor plants
on which VAZ is dependent are an oil and air filter
plant and an upholstery plant, both bought from
Japan, and a seat plant from West Germany.
11. The problem of mass-producing good-quality
tires for the VAZ car has not been solved. Long
negotiations with Pirelli for a modern tire plant
evidently have come to naught, and at present the
necessary tires are being obtained from the Yaroslavl
and Dnepropetrovsk Tire Plants. For the foresee-
able future, the USSR will supply tires to the VAZ
plant from domestic production and from imports.
A new plant is under construction at Nizhnekamsk,
and the capacities of the Yaroslavl and Dnepropet-
rovsk plants are to be increased. Pirelli is also
expanding its facilities in Italy to produce tires
for VAZ.
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Vendor Plants in Eastern Europe
12. Compared with the performance of the newly
established domestic suppliers, vendors in Eastern
Europe, working under five-year cooperative agree-
ments with VAZ, are proving to be reliable. Large
numbers of oarts and components are being delivered
to the Tol'yatti plant from Poland, Bulgaria, Hun-
gary, and Yugoslavia, and smaller numbers from
Czechoslovakia. Deliveries from these suppliers
apparently have been on schedule and in 1970 con-
siderably exceeded the rate of assembly of cars.
13. The plants in Eastern Europe are supplying
parts and components for which they have an estab-
lished production capability. Poland and Yugo-
slavia produce FIAT cars and thus are able to
supply FIAT parts. Hungary traditionally produces
radios and electrical equipment, and Bulgaria
specializes in manufacturing and exporting batte-
ries. Thus, in supplying VAZ, the East European
plants are able to benefit from increases in scale
of production, while the USSR, for its part,
economizes on labor force and investment in plants
and technology.
14. Payment for the parts and components will
be made mainly in finished cars. Hungary and Bul-
garia will receive VAZ cars, and Poland and Yugo-
slavia will receive Soviet cars of other models --
Moskviches or Volgas -- or parts and components
for their domestic production of FIAT vehicles.
Labor Supply
15. When operating at capacity on two shifts
a day, VAZ will employ about 50,000 workers. The
vast amount of trained labor required to form this
large staff is not readily available in the USSR,
and much effort is being expanded on a training
program which is progressing only slowly. Scores
of engineers and technicians have been trained at
the FIAT facilities in Italy since 1966, and many
hundreds of workers have undergone training at
other plants of the Soviet automotive industry, in
particular at the GAZ plant in Gor'kiy. A large
training facility is in operation at VAZ that is
staffed with personnel from technical schools 'in
the area and with technicians from the VAZ cadre.
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A major contribution to training also has been
made by Western technicians who have been engaged
in setting up and adjusting machinery at the plant
and who at peak periods numbered as many as 1,000
persons.
16. The total labor force at the plant at
present ranges between 30,000 and 40,000, but this
figure includes construction and installation
workers as well as the production force. As the
various stages of construction are phased out,
many construction workers are transferring to the
production labor force and entering the plant's
training program.
Prospects for Private Ownership of Passenger cars
17. By 1975 the plan is for the Soviet passen-
ger car industry to reach a production level of
1.2 million cars, 'half of which are to be built
at VAZ. The other half will be produced at exist-
ing plants now being modernized and expanded, as
shown in the table. The USSR is significantly
expanding three of its other four passenger car
plants -- the Moskvich plant in Moscow (AZLK), the
Moskvich plant in Izhevsk (ZIMA), and the Zaporoz-
hets plant in Zaporozhye (ZAZ). At Gor'kiy, capac-
ity to build the Volga is increasing by only about
15%. Most important of these programs is the
expansion of the Moskvich facilities under contract
with Renault of France for technical assistance
and equipment. The Moscow plant is being retooled
and expanded to a capacity of 200,000 Moskvich cars
a year from its 1966 capacity of 80,000. Operation
at full capacity was scheduled for 1970, but only
107,000 cars were produced that year. An annex,
being built several miles from the main plant, is
behind schedule partly because the Moskvich project
has had to compete with the FIAT project for con-
struction resources. Renault also has assisted
in the expansion of the Izhevsk plant which assem-
bles Moskviches from parts furnished by the Moscow
plant and its suppliers. The Izhevsk plant
assembled 20,400 Moskvich cars in 1970 and viii
have the capacity to assembly 200,000 per year
when it is completed. The ZAZ plant in Zaporozhye,
which produces the smallest and least expensive
car, was scheduled to produce at the new capacity
of 150,000 cars per year by 1970 but turned out
only 87,000.
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Thousand Units
Announced Output
Expected Output
Planned
Capacity
Model
Plant
1968
1969
1970
1971
1972 2/
1973 a/
1974 a/
1975
Volga
GAZ
68 a/
72 a/
68 a/
73
75
75
75
75
Moskvich
AZLK*
86
88
107
110
150
200
200
200
Moskvich
ZIMA
8
14
20
30
75
100
125
200
Zhiguli
VAZ
0
0
22
160
320
400
500
600
GAZ-69 (Jeep)
UAZ
40
40 a/
40 a/
40
40
40
40
40
1.265
Total
280
294
344
513 b/
780
945
1,080
1,210 b/
a. Estimated.
b. Planned output.
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18. Soviet consumers are beginning to see some
payoff from the long-awaited opening of VAZ. About
one-fourth of the Zhigulis built in 1970 were sold
to private citizens but only in Moscow (where
nearly 4,000 had been delivered by the end of
December) and in the Tol'yatti area. In 1971,
small numbers are to be delivered to retail outlets
throughout the country. No waiting lists have
been established for the Zhiguli; instead, they
are being offered to and purchased by persons who
have registered on lists to buy Volgas, the highest
priced Soviet car that is sold to the public.
19. The Zhiguli, for sale at 5,500 rubles
($6,105),* is a medium-priced car in the Soviet
Union. It is priced considerably below the expen-
sive new model Volga, GAZ-24, which costs 9,000
rubles ($9,990). Although the Zhiguli is slightly
smaller than the popular Moskvich, which is priced
at 4,936 rubles ($5,479), it commands a higher
price because it is Western designed and is technically
superior. These are formidable prices for Soviet
workers and employees whose average cash income in
1970 was 122 rubles a month. The price of a Zhiguli
is equal to about two years' earnings for an average
Soviet family with two incomes, and thus out of reach
for the majority of families. Prospective buyers for
the most part represent, as they have in the past,
the highly paid professional and managerial elite who
have accumulated enough savings to make cash payments
for the car.
20. Despite high prices, there continues to be
a ready market for cars. Waiting lists are long,
containing up to 300,000 names for the whole
country in 1971, of which 60,000 were in Moscow.
Moscow lists were closed in early 1970 and will
remain closed during 1971. However, the demand
reflected by waiting lists at the beginning of
1970 could be satisfied by current production in
1971 and 1972 even if the usual share of output to
retail sales is not increased. In view of annual
plans and the progress being made in all of the
passenger car plants, it is possible that the com-
bined output (excluding jeeps) in 1971 and 1972
* At the official exchange rate of 1 ruble equate
Us $1.11.
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could reach 1.2 million cars, of which 300,000 or
more could be sold at retail. Historically, about
one-fourth of new passenger car output has been
sold to the population, about one-fourth has been
exported, and the rest retained by the state for
government use and taxi service. By 1975 the dis-
tribution pattern can be expected to be more
favorable to the consumer, The question then will
be whether there are enough customers with savings
to buy 300,000 cars, two-thirds of total output,
which have been promised for sale at retail in 1975
according to recent official statements.
21. in view of the provisions of the Ninth
Five-Year Plan to continue to increase incomes,
and considering the poor record of the Soviet
economy in fulfilling goals for the production of
consumer goods in sufficient quantity, quality,
and assortment, a continuing increase in personal
savings can be expected. By 1975, savings will
probably exceed 70 billion rubles, compared with
about 46 b'_llion in 1970. Assuming that present
car prices are valid in 1975, sales of 800,000
cars would drain off no more than 4 billion rubles.
The number of savings accounts in 1975 will un-
doubtedly exceed the number in 1970 (about 80 mil-
lion). It seems likely that 800,000 of these
accounts will belong to families with the money and
desire to buy new cars. However, these sales will
do little to improve the average quality of Soviet
life in 1975 and may do much to deepen general dis-
satisfaction by further distinguishing the elite
from the ordinary person in the Soviet "classless"
society.
Conclusion.
22. The Volga passenger car plant, a joint
effort of the USSR and FIAT of Italy, began assemb-
ling cars in September 1970, about ten months later
than scheduled by the contract. The plant still
is not complete, however, and full production of
600,000 cars a year on three parallel assembly lines
probably will not be achieved before 1974 or 1975 --
two to three years later than scheduled. Planned
output of 160,000 cars in 1971 can be achieved on
the one assembly line now operating, but the second
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line must be operative in early 1972 in order to
reach the annual goal of 320,000 cars, in that year.
Little is known about the third line which the
Soviets are to equip without FIAT assistance.
23. Production at VAZ is dependent on a new
vendor system of questionable reliability, which
includes new Soviet plants and suppliers in five
countries of Eastern Europe. Output at VAZ also
will be affected by the skill level, of the labor
force. The USSR does not have available the
experienced la;?or needed, and a vast amount of
training is needed for a full labor force of 50,000.
24. In concurrent programs, other passenger
car plants are being expanded to more than double
the former total capacity, but all of these proj-
ects are behind schedule. Renault has assisted
substantially in the modernization of the Moskvich
facilities designed to bring the Moscow and the
Izhevsk plants each to the capacity of 200,000
cars a year. As production of passenger cars in-
creases, more of the affluent private citizens will
be buying cars, but the population will receive
between one-fourth and one-half the total for at
least the next two years. Because of export com-
mitments and expanding official needs, changes
in the distribution pattern favorable to the popu-
lation must come slowly, a fact that brings into
question the official promises that by 1975 private
citizens will receive two-thirds of the output.
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