GENERAL MOTORS UZBEKISTAN TAKES OFF

C O N F I D E N T I A L TASHKENT 000370 SIPDIS SIPDIS E.O. 12958: DECL: 03/27/2018 TAGS: ECON ECIN SOCI PGOV PREL UZ SUBJECT: GENERAL MOTORS UZBEKISTAN TAKES OFF REF: 07 TASHKENT 2023 Classified By: Poloff Steven Prohaska for reasons 1.4 (b, d). ¶1. (C) Summary: General Motors Uzbekistan, a joint venture between General Motors and the state-controlled company UzAvtoSanoat and the largest auto plant in Central Asia, officially opened on March 20 at a gala affair attended by senior GM executives and Deputy Prime Minister Sanakulov. GM representatives told Emboffs that the company has made a relatively favorable 48-hour currency convertibility deal with the Government of Uzbekistan, as well as obtained a 25 percent plus one share "blocking" ownership of the JV with an option to increase to 40 percent. The company plans to increase production and exports in the coming years. President Karimov also may be planning to outfit his fleet of cars with some Cadillacs as a symbol of the new partnership with GM. Increased automobile production and exports from GM Uzbekistan has the potential to mitigate socio-economic grievances in the Ferghana Valley, and particularly in Andijon province, by providing more jobs and reducing the current year-long wait time for citizens of Uzbekistan trying to purchase a car. End summary. Gala Affair Marks Opening of "GM Uzbekistan" -------------- ¶2. (SBU) On March 20, Charge d'Affaires and an FSN who had once worked for UzDaewoo (as the plant was once known) attended a well-planned gala affair at the main exhibition hall of UzExpoMarkaz marking General Motors' (GM) and the Government of Uzbekistan's (GOU) official launch of "GM Uzbekistan". (Note: GM Uzbekistan is a joint venture with the state-owned company UzAvtoSanoat. It is the largest auto manufacturing company in Central Asia and the largest Uzbekistan-US joint venture in Andijon province. End note.) Several senior executives from GM Europe and GM Daewoo flew in from Brussels, Frankfurt, and Seoul for the ceremony. They mentioned that GM Uzbekistan was the latest member of the GM family in 2008, the centennial year of the company's auto production. The executives noted that Chevrolets are the top-selling auto brand in Russia and the Nexia, produced in Uzbekistan, was the top-selling model in Kazakhstan in ¶2007. Deputy Prime Minister Sanakulov represented the GOU. A short, glitzy film about UzDaewoo/GM Uzbekistan was shown, and young women removed the wraps off of two brand-new 2008 "new Nexias," which the audience greeted with oohs and ahhs after an indoor pyrotechnics display. The 500-600 guests then adjourned for dinner and a band. Charge spoke briefly to Deputy Prime Minister Sanakulov, reminding him that GM is an American multinational based in the United States. Sanakulov merely nodded in agreement. (Comment: Up to now, GOU-controlled press coverage of GM's entry into Uzbekistan's auto industry has studiously avoided any mention of GM's American character. End comment.) Charge d'Affaires and the FSN met with the three American citizen GM employees working at the Asoka plant outside of Andijon. Many of GM Uzbekistan's foreign and Uzbek parts suppliers were also at the event. GM Executives Share Insights on Venture -------------- ¶3. (C) The following day, Charge d'Affaires and Poloff met with Tayce Wakefield, GM Executive Director for EU Affairs, Public Policy, and Government Relations and Sergio Rocia, GM Uzbekistan Project Manager. Rocia commented that Uzbekistan had known its auto industry was in trouble because the autos manufactured there are not in compliance with international emissions and safety norms. A foreign partner is thus critical for Uzbekistan to maintain and increase auto exports. Uzbekistan's earlier attempt at a partnership with Hyundai had failed after the Koreans had proposed taking over complete management of the plant. GM formulated a negotiating strategy to gain the Uzbeks' trust. The negotiations were tough. "If you showed a finger, they wanted a hand; if you showed a hand, they wanted an arm," he summarized. But in the end both sides signed a deal meeting each side's needs. ¶4. (C) Rocia corroborated press reports indicating that GM has a 25 percent plus one share in the joint venture, with an option to increase this to 40 percent. He explained that under Uzbek law, a 25 percent plus one share enables this shareholder to "block" major decisions. In tough negotiations, GM insisted on this "blocking" share. Rocia added the only money GM has paid in the joint venture is roughly ten dollars for the one share, as the 25 percent share is the valuation of the technical manufacturing expertise and marketing networks GM brings to the deal. ¶5. (C) Rocia mentioned that initial auto production would be conservative but would expand later on. (Note: Press reporting indicates that the plant manufactured 170,000 automobiles in 2007, and a GM press release states a mid-term potential to build 250,000 Chevrolets per year in Uzbekistan. End note.) Currently, slightly more than half of the vehicles produced at the plant are exported, but GM plans to shift this ratio to about two-thirds exports in the future. Wakefield noted that GM has very good relations with Russian distributors, and many of the cars produced will end up there. GM will retain production of three existing auto models, including the Nexia, at the plant, but will upgrade their exteriors and interiors, Rocia had said. Rocia also mentioned that per the terms of the agreement that GM and Uzbekistan had signed the previous day, currency convertibility for the plant would take no longer than 48 hours. (Comment: If true, this is a significant improvement over the weeks to months-long waits other companies have experienced. End comment.) GM is considering facilitating the travel of Uzbekistani officials to Detroit and other GM facilities. How to be a Good Corporate Citizen in Uzbekistan -------------- --- ¶6. (C) Wakefield and Rocia probed Charge and Poloff on how to be a good corporate citizen in Uzbekistan, covering such topics as arts and sports patronage, relations with grass-roots environmental groups, factory tours, exemplary auto plant safety and environmental standards, and human rights issues. Rocia volunteered that GM spent 250 thousand dollars on a survey of environmental concerns at the Asaka plant and found the plant to be clean. GM intended to keep it that way, as well as introduce its exacting safety standards, which, if publicized, might serve to raise worker safety standards in other industries in Uzbekistan. Wakefield probed for more information on Sanjar Umarov, the leader of the "Sunshine Coalition," imprisoned on larceny and income tax avoidance charges in 2005 after a pro-forma, political trial. Advocates for Umarov had contacted GM earlier asking GM to intervene with the GOU on Umarov's behalf. Karimov to Buy Cadillacs? -------------- ¶7. (C) About three weeks ago, President Karimov had visited the auto plant in Andijon province, Rocia said. Karimov gave a speech in which he called for further development of the auto industry, increased exports, and increased profits. Eyeing Karimov's Mercedes Benz, Rocia remarked in jest that driving it did not send a good signal given the presence of the GM Uzbekistan plant. President Karimov asked whether the Cadillac was an American car, which Rocia affirmed. Karimov paused for a long moment. "If I use Cadillacs in my fleet, it would be a signal of our partnership," he said. Rocia told us he had a meeting scheduled with First Deputy Prime Minister Azimov later March 21, and the issue of Cadillacs in the GOU motorfleet would be on the agenda. Comment: -------------- ¶8. (C) The launch of GM Uzbekistan is the biggest event in recent U.S.-Uzbekistan economic relations, with a potentially historic impact on Uzbekistan's industrial production as well as good corporate relations. Uzbekistani officials have welcomed the official launch of the GM Uzbekistan plant with open arms, and the populace in Andijon province is probably favorably disposed to this as well. Increased production at the auto plant has the potential to provide more employment in the region, thus mitigating some socio-economic grievances. Moreover, greater production of automobiles at GM Uzbekistan may address persistent complaints in the country about the long waits--on average one year--before the typical citizen of Uzbekistan can purchase a car produced in Uzbekistan. NORLAND