VAZ: Diplomacy, Politics, and Urban Legends (Part Two)

Fiat’s Soviet project faces politically-charged setbacks.

The first VAZ 2101. Image: vadim/Wikimedia Commons

No one could ever accuse Lyndon B. Johnson, President of the United States from 1963 to 1969, of lacking confidence in his own power or in the power of his office and country. Quite the contrary, as Greece’s ambassador found out in 1964, when Johnson told him in no uncertain terms what he thought of the smaller nation’s sovereignty(1). Yet, a persistent feature in US and US-aligned political discourse proved to be a double-edged sword for him: the words ‘Russia’, ‘Soviet Union’, ‘communism’ and ‘socialism’ were and remain veritable berserk buttons(2) for legions of politicians, pundits, and voters on the right of the political spectrum. This sort of sentiment, of course, is not unique to US political discourse, but it remained especially acute, even more than a decade after the McCarthyite purges of the late 1940s and early 1950s, which created near-hysteria at the time.

When such sentiment is prevalent in a society, it is easy for certain factions to leverage it for political gain. This is exactly what the Republicans did in this case: they passed amendments to the Export-Import Bank Act of 1945 that were designed explicitly and specifically to block the proposed loan to Fiat(3). The relevant congressional hearings make for some extremely interesting and revealing reading. However fascinating one may find these hearings, though, the amendments caused problems in other deals, such as with Romania, as evidenced in a 23rd June 1967 meeting of US Secretary of State Rusk with a Romanian delegation led by Romania’s Prime Minister, Ion Maurer, and Foreign Minister, Cornerliu Manescu(4).

In the wake of the Ex-Im loan block.

The aforementioned amendments, combined with the implications of US involvement in the Vietnam War and the upcoming election year, made the Ex-Im Bank loan to Fiat more of a headache for Johnson than something that might garner him votes. This loan was the subject of a meeting(5) he held on 19th September 1967 with his Italian counterpart, Giuseppe Saragat(6), in Washington, after the House  of Representatives and the Senate had adopted amendments to the Export-Import Bank authorization legislation designed to block the loan.

Italian President Giuseppe Saragat met with Lyndon Johnson in an attempt to reverse the House and Senate’s block of the Ex-Im Bank’s loan to Fiat for the VAZ factory. Image: mondoperaio.it

President Saragat made his case by repeating several arguments that had already been made by Fiat’s President, Vittorio Valletta(7), by the United States’ relevant agencies – including the CIA and the Department of Defense – and Johnson’s own Deputy Special Assistant for National Security Affairs, Francis Bator(8). More specifically, Saragat reminded Johnson that Fiat was  obviously not going to make missiles in the Soviet Union, and that the project was about encouraging “a commercially-orientated economy in the Soviet Union.” This, according to Saragat, would promote a higher living standard there and “play a part in promoting the evolution of democracy in the Soviet Union.(5) Most importantly, by achieving these goals, this project would help reduce Soviet military expenditure and promote peace. In fact, the Chairman of the Soviet Council of Ministers, Alexei Kosygin, had explicitly expressed his desire to cut military spending and promote the production of consumer goods to raise the Soviet people’s living standard(6).

In addition to these points, Saragat argued that the request for the loan was not driven by financial necessity: with 12,000 employees and an annual turnover of approximately $2 billion, Fiat had no need for this money(5). The $50 million loan requested was one fortieth of Fiat’s turnover and the company’s President could even use his own money to fund the building of the VAZ factory. Additionally, as a private entity, Fiat was not subject to the kind of scrutiny that, for example, Alitalia, the Italian state-owned airline, was. Still, Saragat argued, the loan had a certain psychological value: it would essentially show that the project had the blessing of the US, and so it would demonstrate that it carried no anti-American overtones, and that there was no room for it to be exploited politically or ideologically.

Johnson was on board with the project: he said it was a “constructive and useful step” that would be beneficial to all parties involved and that, because he agreed with its goals, he had asked the Ex-Im Bank to approve the loan. But, he said, “some members of Congress had felt that to approve the loan would be giving aid to the Communists.” Additionally, despite what he called a successful four years in Congress on the domestic and international front, the election year was coming and anything that could be used to embarrass his administration was fully exploited both by the Republicans and by some self-serving members of his own party. This, of course, meant that many things he felt were worthwhile ran into obstacles, and so he said they should wait until after the elections or “until the Republicans take over.” Still, he promised Saragat that he would do everything he could to get the matter reconsidered.

Equipping the VAZ factory with US machinery…

One can easily understand that Saragat’s efforts were in vain, since “Fiat found credit elsewhere(4) for its project in the Soviet Union. Still, officials in the Johnson Administration understood that, regardless of this setback, US involvement and cooperation in the VAZ factory would be beneficial for their country. So, in a memorandum dated 9th April 1968(9), Johnson’s Special Assistant, Walt W. Rostow, argued for the sale of industrial machinery made by Gleason Works of Rochester, New York (famous in automotive circles for the Torsen limited-slip differential(10)) to the Soviets.

Gleason Works of Rochester, New York were to provide machine tools for the VAZ factory. Image: vintagemachinery.org

The memorandum tells us that the Department of Commerce, “with the concurrence of [the] State and Defense [Departments],” was preparing to license the sale of gear-cutting, testing and measuring machines worth $8.9 million to the Soviet Union for the factory Fiat were building. The CIA and the DoD had given the ‘go-ahead’ for this sale, as the equipment was not strategic and had nothing to do with advanced or new technologies that the US might have wanted to keep out of Soviet hands.

The CIA and the DoD were sure these machines would actually be used in the Fiat plant. Furthermore, this sale would not disrupt Gleason’s defence priorities, and similar machinery from the same firm had already been licensed in 1966 for use in a Soviet-built automotive plant. Besides that, Switzerland and West Germany made comparable equipment and would be eager to make the sale. Furthermore, the financing for this equipment was all private, and no US taxpayer money was involved, either as a loan or as a credit guarantee.

Rostow stated that this was “a clear case of advantageous peaceful trade with the USSR,” with the Fiat plant having a political impact in the Soviet Union that was in the US national interest, and it was also good for the US balance of payments. However, he warned that “protests [would] probably follow approval of the license” from the members of Congress who had consistently opposed US aid to the VAZ plant. The Department of Commerce was not planning to issue a press release, but was preparing a statement of facts to address any enquiries or worries.

…Or not?

Fast forward to 1969. Richard Nixon was now in the Oval Office, and had appointed none other than Henry Kissinger as his Assistant for National Security Affairs. In a memorandum dated 27th March 1969(11) that he sent to Kissinger, J. Edgar Hoover (Director of the FBI), Richard Helms (Director of the CIA), Melvin Laird (Secretary of Defense), and William Rogers (Secretary of State), Senator Charles Percy recounted his lengthy (two hours and a half) discussion with Soviet Ambassador Anatoliy (sic) F. Dobrynin(12), a rather astute diplomat who was “very skilled in talking a great deal, seemingly in response to a question without ever directly answering the question.”

Soviet Ambassador Anatoly Dobrynin did not mince his words regarding the blocking of both the Ex-Im Bank loan and the sale of Gleason’s machine tools. Image: Yoichi R. Okamoto/LBJ Library

When the two men discussed bilateral trade, Dobrynin was highly critical of the United States’ stance. He said the Soviets would like to do more business with the US and that it would benefit both countries, but it was “rather ridiculous for [them] to ship vodka to Denmark and have them rebottle it and sell it to the United States when [they] could sell it direct.” As to the VAZ factory, he said that, when the Italians told the Soviets that they could purchase $30 million of industrial machinery from the US, they were “highly skeptical” and were proven right, because the US “always puts politics ahead of good sound economics.” Because of this, he was not optimistic about US-USSR trading opportunities.

Percy countered that the USSR posed a threat to US national security and that it armed the Vietnamese who were killing “American boys,” and that assisting the Soviet Union to build trucks would be “directly related to the kind of military assistance that they would be providing to North Vietnam.” Dobrynin countered that the Soviet Union was capable of producing whatever it needed and that, if they could not make a deal with the US, they could always make a deal with other countries. A case in point was “the machine tools that the United States would not furnish for the Fiat factory” were all obtainable from Western European countries that were glad to have the business.

The discussion between Dobrynin and Percy leads us to understand that the Republican Party, not content with blocking the Ex-Im Bank loan to Fiat, proceeded to block the export of American-made machine tools to the USSR after Nixon took over. Dobrynin’s observation that the US blocked this sale for political and ideological reasons was further strengthened by the carefully-worded, yet poignant, comments made by Kosygin during the Moscow Summit of 1972.

29th May 1972: Richard Nixon (l) shakes hands with Leonid Brezhnev (r) in Moscow after signing a joint statement. Alexei Kosygin is at the centre. Image: AP Photo/File

On 25th May 1972, during the Moscow Summit(13), Richard Nixon had a meeting with Nikolai V. Podgorny, Chairman of the Presidium of the Supreme Soviet of the USSR, and Alexei Kosygin(14). In this meeting, Kosygin said “with American assistance we built the Gorky Auto Plant(15) and the Volgograd Tractor Plant(16). And you know, about three years ago we entered into a contract with the Italian Fiat Company which built a very big project in this country.” After noting that there was no trouble at all working with the Italians on the project, he added that he had recently visited the Volgograd Plant, where he saw with his own eyes US-made equipment sold to the Soviets by the Italians. There was, however, no mention of US-made equipment in respect of the VAZ factory.

So far, we’ve learned that Lyndon Johnson wanted the US to get involved in the construction and establishment of what was to be the VAZ factory by providing a $50 million loan through the Ex-Im Bank and selling industrial equipment for it. However, despite the opinion of every relevant official and agency(8)(9), the opposition put paid to his plans. This led Fiat to bankroll the project privately(9) and procure the necessary equipment from other countries. In the third and final part of this series, we will use the information we have gleaned from the State Department’s Historical Archives to fact-check certain automotive narratives that are still taken at face value.

Sources, quotations, and acknowledgements:

(1) Gary Younge – How Greece Exposed Europe’s Potemkin Democracy : The Nation, 28th November 2011

(2) Berserk Button – TV Tropes

(3) United States. Congress. House. Committee on Banking and Currency (1967). To Amend the Export-Import Bank Act of 1945: Hearings, Ninetieth Congress, First Session, On H.R. 6649 … April 11, 12, And 28, 1967 (Washington: Government Printing Office, 1967) [accessed 3rd May 2022]

(4) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 156 [accessed 1st May 2022]

(5) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 134 [accessed 1st May 2022]

(6) Giuseppe Saragat – Wikipedia

(7) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 114 [accessed 27th April 2022]

(8) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 124 [accessed 27th April 2022]

(9) Foreign Relations of the United States, 1964-1968, Volume XIV, Soviet Union, eds. David C. Humphrey and Charles S. Sampson (Washington: Government Printing Office, 2001), Document 269 [accessed 1st May 2022]

(10) Torsen – Wikipedia

(11) Foreign Relations of the United States, 1969–1976, Volume XII, Soviet Union, January 1969–October 1970, ed. Erin R. Mahan (Washington: Government Printing Office, 2006), Document 29 [accessed 2nd May 2022]

(12) Anatoly Dobrynin – Wikipedia

(13) Moscow Summit (1972) – Wikipedia

(14) Foreign Relations of the United States, 1969–1976, Volume XIV, Soviet Union, October 1971–May 1972, eds. David C. Meyer, Nina  D. Howland, and Kent Sieg (Washington: Government Printing Office, 2006), Document 276 [accessed 2nd May 2022]

(15) He was referring to GAZ (Gorkovsky Avtomobilny Zavod).

(16) Volgograd Tractor Plant – Wikipedia

Author: Konstantinos Tzoannopoulos

Industrial engineer. Disgruntled lover of Italian cars. Virtual worlds dilettante.

17 thoughts on “VAZ: Diplomacy, Politics, and Urban Legends (Part Two)”

  1. A great analysis, very well researched, thank you Konstantinos. Isn’t it depressing how political dogma on the part of some US politicians frustrated constructive engagement with the USSR and, no doubt, provided evidence to support similarly dogmatic anti-US attitudes on the Soviet side. Plus ça change.

    1. That’s exactly the way it is, Daniel. It’s appalling. In the third part, I’ll deal with the fallout of this deal and its politics in the way automotive history is written.

  2. Amazing – thank you for all the hard work that’s gone in to condensing this complicated story, Konstantinos. There are parallels with today – it’s incredible how much is spoilt and wasted through people thinking / talking cobblers.

  3. Great work Konstantinos, I am full of admiration for your very diligent research and well presented conclusions, looking forward to the next instalment.

  4. It’s nearly impossible to comment on stories like this series without breaching DTW’s rules.
    What I read here makes me speechless and furious (once more).

    1. I remember tests of the Lada which told the reader that the coarse operation of its light switch was proof of the superiority of capitalism.

    2. I remembered something: back when I was a kid, my mom had a Polish-made Fiat 126 Personal. Its column stalks and rocker switches felt coarse in their operation. The same applied to their counterparts in one of our relatives’ Fiat 128 3p and in the 1972 Fiat 124 Berlina that belonged to my late father’s best friend. And don’t even get me started on the agricultural feel of the switches and HVAC controls of my own Lancia Y10 1.1 i.e. or the rotary HVAC controls of the Fiat Idea/Lancia Musa; with the exception of the 126, these cars were made in a capitalist country, while the later ones were made under the sort of crony capitalism dreamt up by Milton Friedman and Ayn Rand. So much for the validity of the reviewer’s argument, and so much for his own credibility.

    3. The reason for the ‘gritty’ rocker switches, creaky and sticky column stalks and hard, hollow, scratchy black plastic dashboards of late 1970’s facelifted Fiats was nothing to do with communism, but quite the opposite: it was cold, hard cost-cutting and maximisation of profits, the very essence of capitalism.

      The original 128 had this perfectly pleasant if slightly old-fashioned affair, with a padded top and fake wood insert:

      The facelifted car had this horrid coal-hole instead:

      I had the opportunity to drive both back in the day and the facelifted one was horribly cheap and nasty in comparison.

    4. I think this kind of stuff was called ‘mid-Seventies Italian awful’.

  5. I don’t remember us being so obsessed with silky switch action and damped grab handles back in those days so that criticism does smack of barrel scraping.

    In retrospect the contemporary reviewers were UK partisan pretty much to a man. And yes they were all men, that doesn’t seem to have changed very much but a topic for another day.

    At the time I will admit I found the jingoism perfectly natural – it was simply all pervading and had been for all my life – today I can see the bias that gave preferment to Dagenham dustbins and their other British cousins over much more sophisticated offerings from mainland Europe.

    It would be nice to think we’ve all outgrown that but I fear that needle has swung again – that’s probably political enough for a Friday morning on DTW so I’ll just say thanks again Konstantinos and other commentators and look forward to Part 3!

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