A dozen workers at the VAZ workshop that assembles Kalina cars were happily playing dominoes waiting for the Prime Minister to arrive. The huge scoreboard made it clear that production was at a standstill. The column showing "finished cars" showed a big "0". Combined with nearly 100,000 unsold Ladas lining the road from the Samara airport to the city of Togliatti, the prospects for the Russian auto giant looked bleak. The workers did not feel inspired even by Vladimir Putin's promise: "You will keep your jobs. You can be 100% sure of that."
In the opinion of experts, the AvtoVAZ bailout programme announced by the Prime Minister cannot ensure its stable work in the long term. The market is filled by better quality foreign cars assembled in Russia at comparable and sometimes lower prices than those of VAZ. The Prime Minister's announcement that he had himself bought a Niva car will hardly make much difference.
The main problems for AvtoVAZ are not the company's debts, lack of government support or even the world economic crisis. The latter merely highlights the fact that the Togliatti plant produces outdated cars. Cosmetic repairs or partial modernisation will not be enough.
Everything seems to favour the plant: Competition from used foreign cars has been slapped down by increased customs duties, and the rouble's devaluation should also make AvtoVAZ more competitive. But here is the rub: Most of the parts from which Ladas are assembled are imported. The electronics are 100% imported. Devaluation has increased the price of parts by 40%. Add to this higher interest rates (total debt of 44 billion roubles).
"We raise prices but the profit margin is practically zero," AvtoVAZ leadership admits. The plant in Vsevolozhsk recently announced a reduction in the Ford Focus price.
The president of AvtoVAZ, Boris Aleshin, when asked whether the plant could repay at least part of its debt, said he would ask the banks to extend the loans. He is opposed to putting on hold the modernisation programme, which will cost 95 billion roubles. A loan from Vnesheconombank is one option, in his opinion. AvtoVAZ's own resources are very limited. Cost optimisation should release 19 billion roubles, but the Government should also help, according to Mr Aleshin.
The most frequent words during the meeting in Togliatti were "state guarantees" and "state order". A decision on the first item of the programme has been made: The Government will earmark 25 billion roubles for additional capitalisation of Rostekhnologii. As a shareholder, Rostekhnologii will transfer the money to AvtoVAZ as an interest-free loan. Mr Putin also promised an annual subsidy of 621 million roubles to support the social sphere. The Government is even ready to buy its cars for officials of various levels and has allocated 32.5 billion roubles for the purpose.
However, a multi-billion aid package to AvtoVAZ will give it only a temporary respite. It will be used to repay the debts to banks and parts suppliers. But the plant also has to pay taxes and wages while no increase in profits is in sight: there is no demand. Most importantly, there are no resources for developing new models, which makes it impossible to compete with foreign cars assembled in the country. Perhaps one should agree with the experts who suggest that the enterprise be sold to a strategic investor, who would overhaul the plant to producing cheap foreign cars. The plant's workforce, including some top-notch specialists, will not suffer, and consumers will gain a lot. After all, the Russian football authorities, too, had tried to support the "domestic producer" before hiring a foreign coach, and it looks like it was the right thing to do.
Alexander Chudodeyev