Fiat Builds a Factory in the Soviet Union Summary

  • Last updated on November 10, 2022

Fiat, the major Italian auto company, built an assembly plant in the Soviet Union, causing U.S. anxiety over technology transfers and beginning an era of East-West economic cooperation.

Summary of Event

On May 4, 1966, the Soviet Union and the Italian automobile manufacturing company Fiat signed an agreement to permit construction of the Volga Automobile Assembly Plant in Tol’yatti (also known as Togliatti or Tolyatti), a town formerly called Stavropol’ and located on the Volga River near Kuybyshev (now Samara). The plan was for the plant to produce about 600,000 small and medium-sized cars per year. Construction began in 1968 and was completed in 1971, although automobile production actually began before completion of the plant. By April, 1970, 660,000 VAZ automobiles had been produced. The VAZ was essentially the Fiat 124, an automobile comparable to the Soviet Moskvich 408 in terms of size and price. Fiat Automobiles Volga Automobile Assembly Plant Cold War;Italy Soviet-Western relations[Soviet Western relations];trade [kw]Fiat Builds a Factory in the Soviet Union (May 4, 1966) [kw]Factory in the Soviet Union, Fiat Builds a (May 4, 1966) [kw]Soviet Union, Fiat Builds a Factory in the (May 4, 1966) Fiat Automobiles Volga Automobile Assembly Plant Cold War;Italy Soviet-Western relations[Soviet Western relations];trade [g]Europe;May 4, 1966: Fiat Builds a Factory in the Soviet Union[08890] [g]Soviet Union;May 4, 1966: Fiat Builds a Factory in the Soviet Union[08890] [c]Manufacturing and industry;May 4, 1966: Fiat Builds a Factory in the Soviet Union[08890] [c]Transportation;May 4, 1966: Fiat Builds a Factory in the Soviet Union[08890] [c]Diplomacy and international relations;May 4, 1966: Fiat Builds a Factory in the Soviet Union[08890] Agnelli, Giovanni Gvishiani, Jermen M. Savoretti, Piero Tarasov, Aleksandr Togliatti, Palmiro Valletta, Vittorio

The May 4, 1966, agreement was signed by Aleksandr Tarasov, the Soviet minister for automotive production, and Vittorio Valletta, the president of Fiat. Valletta was a former professor of banking who had made use of Marshall Plan funds to rebuild Fiat after World War II and had managed the firm after the death of Giovanni Agnelli, the founder of the company, until Agnelli’s grandson (with the same name) assumed the chairmanship on May 1, 1966. The agreement was the culmination of several years of negotiations between the Soviets and Fiat that included the efforts of the Agnelli family and Valletta as well as Jermen M. Gvishiani, son-in-law of Soviet premier Aleksey Kosygin Kosygin, Aleksey , and Piero Savoretti, a business negotiator and middleman from Turin, Italy.

Joint auto projects involving Fiat and the Soviet Union go back to 1912. The most significant agreement prior to 1966 was signed by Valletta, on behalf of Fiat, and Konstantin Rudnev Rudnev, Konstantin , the Soviet deputy premier, on behalf of the Soviet State Committee on Science and Technology Soviet State Committee on Science and Technology (GKNT), on July 1, 1965. In this agreement, the parties indicated their willingness to build a plant at Tol’yatti Tol’yatti, Soviet Union[Tolyatti, Soviet Union] that would produce two thousand cars per day. In the keynote address to the Twenty-third Communist Party Congress (1966), Premier Kosygin gave a strong emphasis to the need of the Soviet Union to import technology from other countries, a clear sign of the approval of, and a high importance being attached to, the Fiat-Soviet project.

A strong reaction against the project developed in the United States because of the fear of supplying machinery and technology that would put the West at an industrial and military disadvantage. At the time, it was widely believed that a facility like the one being planned could easily be converted to the production of goods that could be supplied, by the Soviet Union, to the North Vietnamese government for direct use against American troops.

The issue came to a head when, in mid-1967, the U.S. government was invited to participate in the project through making loans via the U.S. Export-Import Bank Export-Import Bank[Export Import Bank] (EXIMBANK). The loans would be received by the Italian state-owned export credit agency, the Instituto Mobiliare Italiano Instituto Mobiliare Italiano (IMI), for control purposes prior to being disbursed for project expenditures. In the United States, the president; the departments of Defense, State, and Commerce; and the EXIMBANK all favored making such loans, but Congress would not grant approval. Critics pointed out that an estimated 75 percent of all equipment installed by Fiat in the Tol’yatti plant was to be produced by American firms and sold directly, or indirectly via European subsidiaries, to Fiat for use in the project.

The cost of the Tol’yatti project was approximately $800 million. The Soviet Union would immediately supply $480 million in the form of buildings ($167 million), machinery ($100 million), and other facilities and services ($213 million). The balance of $320 million ($255 million for equipment plus $65 million for other facilities and services) would be supplied by Italian, other European, or U.S. sources, primarily through Fiat. Money for the non-Soviet portion of the project ($320 million) was provided through the IMI. The Soviet Ministry for Foreign Trade agreed to repay this loan in seventeen semiannual installments beginning at the completion of the project. The interest rate on the loan was below those usually charged by the IMI for projects of this type.

Supporters of the project presented several arguments to critics. First, Soviet consumers were so eager for automobiles that they would not stand for a reversal of the intended use of the plant. Second, once exposed to Western products and production technologies, the Soviet Union would undergo an inevitable Westernization, to the point of crippling the communist economic system and ending the Cold War. Third, the Soviet Union would enter the “auto age” regardless of assistance given by the United States; becoming involved would give opportunities for economic and political control.

Significance

The most immediate and obvious impact of this event was the dramatic increase in annual Soviet automobile production, from 201,000 to more than 800,000 units within the first year (1970) of operation of the Tol’yatti facility. For comparison purposes, it is useful to examine data from other automobile-producing countries. Among fourteen countries, the Soviet Union in 1964 had the lowest production of automobiles per capita (4 cars per 1,000 people); the next lowest producer was Japan (17 cars per 1,000 people), followed by Spain (20 cars per 1,000 people), Belgium (21 cars per 1,000 people), and Argentina (36 cars per 1,000 people). Italy produced 90 cars per 1,000 people, and the United States produced 375 cars per 1,000 people.

Thus, although automobile production increased fourfold in the Soviet Union in 1970, per capita production was still quite low. Nevertheless, this was the beginning point for continued growth of the Soviet automobile manufacturing industry. The Tol’yatti plant was followed by a number of other Fiat ventures in Eastern Europe. Within two years of the Tol’yatti agreement, Fiat automobiles were being manufactured in Poland, Yugoslavia, Bulgaria, and Romania. By 1991, more than two million Fiat automobiles were being produced annually in Eastern Europe. In the years that followed the collapse of communism in Eastern Europe, other auto producers entered that growing market.

One effect of the growth of domestic auto production capability in the Soviet Union was to decrease the potential for foreign sales of Fiat automobiles produced in Italy. This was one factor, among many, that led to the so-called “hot autumn” of 1969 and its consequences. Following an economic slowdown in 1964 and 1965, the Italian economy turned around and grew dramatically from 1966 to 1969. Nevertheless, all through this time Italian workers believed that they were not receiving their fair share of the benefits of growth and that the government had not expanded services in line with increased tax receipts. Resentment concerning the “exporting” of jobs to the Soviet Union served to add fuel to the fire of labor unrest.

In 1969, labor union Labor unions;Italy contracts directly affecting five million workers came up for renewal. These workers were affiliated with labor unions that, in turn, were organized into three main confederations closely associated with major political parties. Workers were dissatisfied not only with their earnings but also with union leadership, which they believed to be lacking in militancy in representing their interests. Workers formed factory committees of union and nonunion employees to put pressure on the unions. The unions responded by taking strong positions that were initially rejected by management and led to bitter labor conflicts. A record number of production hours (more than 300 million) were lost as a result of strikes. Because the unions did not have large reserve funds to replace wages lost by strikers, the unions used “articulated” strikes—short-term work stoppages in key functional areas. Final labor agreements resulted in major improvements in working conditions and wages.

An effect of the increase in Soviet production, especially the production of automobiles, was to begin the long process of opening the Communist Bloc to the West and eventually ending the Cold War. This point was clearly in the mind of Agnelli, who declared four months after the Fiat-Soviet accord was signed that the Cold War was over. Agnelli became an early advocate of the idea that East-West trade would expand dramatically and that the Soviet Union would shed its communist economic philosophies in favor of capitalism. Other factors, such as the impact of Solidarity in Poland, the overextension of Soviet foreign policy, the bankruptcy of the communist system of centralized planning, and the appeal of individualist freedom, coupled with other military and political pressures, also influenced the monumental events surrounding the ending of the Cold War. The ingenuity and confidence of capitalism was suggested in Fiat’s move, however, and the rapid transformation and integration of Eastern Europe into the Western capitalist fold indicated that such confidence was well-founded. Fiat Automobiles Volga Automobile Assembly Plant Cold War;Italy Soviet-Western relations[Soviet Western relations];trade

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Friedman, Alan. Agnelli: Fiat and the Network of Italian Power. New York: New American Library, 1989. The purpose of this biographical book is to critically assess the power that Giovanni Agnelli created in Italy through the almost monopolistic dominance of his automobile manufacturing company, Fiat. Chapter 14, entitled “State Within a State,” describes in detail the deals made between Fiat and the Soviet Union.
  • citation-type="booksimple"

    xlink:type="simple">Murray, William. The Last Italian: A Portrait of a People. New York: Prentice Hall, 1991. Chapter 13 discusses Giovanni Agnelli and the part he played in the decision to build the Fiat auto assembly plant in Tol’yatti. Also discusses the effect of this and other activities of Fiat in making the company an international power.
  • citation-type="booksimple"

    xlink:type="simple">Patriotta, Gerardo. Organizational Knowledge in the Making: How Firms Create, Use, and Institutionalize Knowledge. New York: Oxford University Press, 2003. Fiat is the central case study in this examination of the phenomenon of institutional knowledge and its function in the corporate world. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Sutton, Anthony C. Western Technology and Soviet Economic Development. Stanford, Calif.: Hoover Institution on War, Revolution and Peace, Stanford University, 1973. Provides one of the most useful descriptions of the sale and use of Western technology, via Fiat, to the Soviet Union during the period 1966-1973.
  • citation-type="booksimple"

    xlink:type="simple">Templeman, Donald C. The Italian Economy. New York: Praeger, 1981. A reliable source concerning the development of the modern Italian economy. The first two chapters describe the economic performance of Italy in the 1960’s, including the “hot autumn” of 1969.
  • citation-type="booksimple"

    xlink:type="simple">Urban, Joan Barth. Moscow and the Italian Communist Party. Ithaca, N.Y.: Cornell University Press, 1986. Traces the relationship between the Italian Communist Party (PCI) and the Soviet government from the 1920’s to the 1980’s. Much detail concerning the influence of Palmiro Togliatti, a PCI founder. The site of the Fiat automobile assembly plant in the Soviet Union, formerly called Stavropol’, was renamed Tol’yatti in honor of him.
  • citation-type="booksimple"

    xlink:type="simple">U.S. Congress. House. Committee on Banking and Currency, Subcommittee on International Trade. The Fiat-Soviet Auto Plant, and Communist Economic Reforms. 89th Congress, 2d session, 1967. Although this U.S. government document is not easily accessible, it is one of the most complete contemporary reviews of construction of the automobile assembly plant in the Soviet Union by Fiat. Much of this ninety-nine page document is devoted to the issue of the involvement of the United States in providing, via Fiat, manufacturing technology to the Soviet Union. Helpful appendixes provide reprints of four 1966 news magazine articles concerning the issue of providing Western manufacturing technology to the Soviets.

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