Renault signs Lada rescue deal

RUSSIAN prime minister Vladimir Putin has signed a multi-billion-dollar rescue deal with Renault that will reignite Avtovaz, the troubled manufacturer of Lada cars.

Under the deal, which is expected to be finalised in March 2010, the Russian government has pledged €1.67 billion ($A2.75 billion) in financial support for Avtovaz, while the French manufacturer will contribute the equivalent of €240 million ($A396 million) through the transfer of technologies, production equipment and know-how to build new vehicles based on its B0 (Logan) platform.

Intent on ensuring Avtovaz remains viable after spending around $1 billion for a 25 per cent stake in 2008, Renault has also agreed to help Russia’s largest car-maker develop a new entry-level vehicle to replace the Lada Classic.

Furthermore, Renault will assist Avtovaz in creating new powertrain production capacity and developing export operations.

According to the partners involved in the deal, the rescue funds and the restructuring to follow will enable Avtovaz’s Togliatti plant south-east of Moscow to produce 900,000 vehicles a year by 2015 – up from an expected 400,000 this year – and will allow it to maintain its 25 per cent market share in Russia.

Left: Russian prime minister Vladamir Putin.

The signing of a memorandum of understanding last week follows Avtovaz’s announcement in September that it would cut a quarter of its workforce, slashing 27,600 workers – most of them at Togliatti, which employs almost 100,000 people.

As GoAuto reported at the time, Avtovaz was reportedly considering a workforce reduction of 36,000 employees but was able to “significantly lower the initial figure”.

The car plant is the lifeline of the local economy, and the Russian government’s €1.67 billion in funds – triple the amount it had previously pledged – should stem social unrest in the town that was expected if more layoffs were announced.

The financial support will be used to reimburse bank debt and cover Avtovaz’s short-term cash needs.

Avtovaz will also save millions in personnel expenditure, with the Samara regional government agreeing, as part of the rescue deal, to take over the payroll costs of 14,600 employees, who will be transferred to two Avtovaz subsidiaries“Renault, together with alliance partner Nissan, are planning to utilise capacity at the Togliatti plant to build vehicles for each brand,” Renault said in a statement last Friday.

“All these measures will help Avtovaz to restore its margin and increase market shares of combined sales of Lada, Renault and Nissan in the Russian market. The Lada brand will constitute at least 70 per cent of the total production volume of Avtovaz in Togliatti.”