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Russians Put 50 Billion Rubles into Failing Lada

Renault keeps 25% stake. Offers more technology transfers.

by on Nov.30, 2009


Lada’s Togliatti plant will expand by about 200,000 vehicles to 900,000 annually.

Renault, government-owned Russian Technologies and Troika Dialog, an investment bank, have signed a memorandum of understanding to reorganize heavily indebted AvtoVAZ, a maker of more than a dozen models, and best known in the west for its Lada brand.

The pending deal, due to close by March 1, will expand Lada’s Togliatti plant by about 200,000 vehicles to 900,000 annually by 2015. It allows AvtoVAZ, in theory, to sustain its Russia auto market share at about 25%, while developing what are thought to be ambitious export operations.

It was only a short while ago that the Russian car market experienced rapid growth to 2.7 million vehicles in 2007. That was when Renault invested $1 billion TK € for its 25% stake in AvtoVAZ.

However, this was pre-financial crash and the ongoing global Great Recession caused by it, which is in the process of drastically altering the auto business, among other industries. In Russia, sales plunged in 2008 to 1.45 million units. Sales are running at about 1.6 million units annually this year — making Renault’s previous planning assumptions of 3.2 million units in 2008, and 4 million vehicles annually by 2014 seem, well, absurd. If it ever happens that would make Russia the largest car market in Europe.

It was the Russian government’s desire to make its auto industry a global player that caused the Opel sale to collapse.



Ultimately, the GM Board of Directors rejected the planned sale of Opel to Magna and Russian Sberbank in early November because it bolstered Russian vehicle sales by using its technology while restricting access of GM’s Chevrolet brand in the huge market and with, apparently, shaky or disingenuous safeguards on intellectual property rights.

AvtovVaz – City of Togliatti, Russia

Soon to be an automotive export hub?

Under the terms of the Lada restructuring, the Russian government will increase its financial support for AvtoVAZ from 25 to 75 billion rubles (€1.67 billion). This will pay down debt and cover the company’s short-term cash needs. The Samara regional government, where Ladas are built, will take over the payroll costs for the 14,600 employees to be transferred to two AvtoVAZ subsidiaries.

Renault will contribute the equivalent of €240 million (10.8 billion rubles) in-kind through the transfer of technologies, production machinery, equipment and expertise in support of the production of new vehicles based on the BO (Logan) platform. The inexpensive Logan sedan, produced in Russia by Renault, has been a sales success with well over 200,000 produced to date. A hatchback version is due shortly.

Renault’s Russian sales network of 74 dealerships and 94 sales outlets is expanding with the goal of being present in every city of at least 100,000 people.

Renault will also help AvtoVAZ develop a “new entry-level vehicle” to replace the Lada Classic, based on ancient Fiat technology, and create new powertrain production capacity.

Renault and Alliance partner Nissan plan to use Togliatti to build vehicles for each, although the Russians have stipulated that 70% of the output will be restricted to Lada vehicles.

Attending the signing ceremony in Paris were Serguey Chemezov, General Director of Russian Technologies and Chairman of the board; Igor Komarov, President of AvtoVAZ; Christian Estève, Senior Vice-President of the Renault group and President of its Eurasia Region; and Serguei Skvortsov, Managing Director of Troika Dialog. Also at the event were Vladimir Putin Prime Minister of the Russian Federation, François Fillon, Prime Minister of France, and Vladimir Artyakov, Governor of Russia’s Samara region.

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