Russan carmaker AvtoVAZ to go Chrysler, Fiat route with Renault

By Automotive Staff | December 11, 2009
This sound almost like the Chrysler-Fiat situation. The Russian government will give Russian auto manufacturer AvtoVAZ $1.65 billion and Renault will partner with the company and provide it with technology and equipment valued at $360 million. It is hoped that the contributions will permit AvtoVAZ to hold 25 percent of the Russian auto market and help it with payroll expenses. Currently, Renault owns 25 percent of AvtoVAZ and Russian prime minister Vladimir Putin asked the French company to increase its stake. But Renault said it doesn’t want to invest any more cash in the manufacturer. It is said that Renault’s 25 percent of AvtoVAZ is now worth less than the $1 billion it paid in 2008. Back then the Russian auto market was booming. Today, sales have dropped by as much as 51 percent. It is said that AvtoVAZ is in trouble because it has too many facilities and its technology is outdated. The Russian government was hoping that General Motors would help matters by selling Opel to Magna International and Sberbank of Russia. It was expected that the bank would transfer its shares to GAZ manufacturing, Russia’s second largest Carmaker. Obviously, that did not happen and caused this deal between the Russian government, AvtoVAZ and Renault to revitalize AvtoVAZ. A sample of AvtoVAZ’s problems can be seen in this simple comparison. Renault has 80,000 workers and is producing a little more than 1.5 million cars in Europe. AvtoVAZ has 100,000 workings producing 400,000 vehicles. Renault; AvtoVAZ; Troika Dialog, Russia’s oldest and largest private investment bank; and Russian Technologies, a state-owned holding firm, signed the agreement. The plan is to increase AvtoVAZ’s production to 900,000 cars a year by 2015. About 70 percent will be Lada-brand vehicles and 30 percent will be vehicles from Renault and Nissan. The Russian government will triple its investment in the company and the Russian region of Samara will cover the cost of 14,600 workers. Meanwhile, AvtoVAZ will get immediate help with the introduction of a Russian version of the Cash for Clunkers program. In this case, the government will give $1,750 to consumers of cars that are at least 10 years old to buy a Russian made vehicle. It is said that is about a 20 percent discount on the average price of a car sold in Russia. The Deutsche Bank claims that close to half of the cars on the roads in Russia are more than 10 years old. via Detroit News
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The Chrysler - FIAT partnership turned out well, producing a win-win situation for both parties. For Chrysler, FIAT was a breath of fresh air, and for FIAT, Chrysler was an open door. I hope it will turn out the same with the Renault- AvtoVAZ partnership.