"Itogi”: “French partner to save Russia’s auto giant?”
The future of the Russian automotive sector may be decided in Paris.
For several months now, a government commission headed by Deputy Prime Minister Igor Shuvalov has been unable to decide which of the three approaches to reforming the national automotive sector to settle on. There are several reasons for this. Firm measures are needed to achieve the required result, but the government promised there would be no massive layoffs and bankruptcies. Another reason is the sector's debt problem which narrows the government's freedom of choice. However, the main problem is the lack of a foreign partner. To find one, Prime Minister Vladimir Putin went to Paris. After its failure to buy a controlling stake in GM's Opel unit, the Russian government prepared its second attempt most thoroughly. Putin proposed not only an increase in the French partner's share in AvtoVAZ's capital, but also participation (10%) in the South Stream gas pipeline project. The French could not resist the temptation. For a start, Renault-Nissan is ready to share €300 million worth of technologies with the Togliatti auto giant. As to the plan for the French partner's expanded participation in AvtoVAZ, which implies that it will assume responsibility for the Russian automotive sector, the French side promised to think it over.
The United States-based Boston Consulting Group (BCG) was also invited to have a part in developing a concept for reviving the Russian automotive sector. BCG proposed three scenarios. The first one envisages a move from reliance on national automobiles and opens the market for CKD assembly (the cost of the project is €9-€12 billion). The second one creates preferences for joint ventures with leading global auto manufacturers (€25 billion). The third one aims to turn Russia into a global auto maker through self-reliance (€40 billion).
Specialists are unlikely to believe that the last scenario is realistic, even if for lack of funds: the €40 billion project will take ten years to implement. However, a new auto platform costs no less than $500 million. Alexei Rakhmanov, head of the automotive industry department at the Trade and Industry Ministry, thinks that at least a dozen such platforms are needed to launch the production of 10 to 20 models. The first scenario will lead to massive layoffs. The second makes the sector completely dependent on foreigners. The Czech Republic and Spain, for example, found themselves in desperate straits when Germany's VW concern, which controlled their automobile markets, decided to withdraw production from those countries during the crisis.
With the Russian automotive sector in a sorry state, the government had to swallow its pride. It is ready to give AvtoVAZ and, probably, some other auto plants, to foreigners. Most specialists believe that we are falling too far behind in this sector, so we need foreign technologies. The government is taking part in the effort to get them, not without success, as Putin's visit to Paris shows.
By parting with its "auto independence," Russia will be able to save resources, though even this moderate scenario will require considerable spending.
Valery Draganov, first deputy head of the Duma industrial committee, thinks the state "should not just save the plant but create stimuli for production modernisation by private investors' efforts." In the case of the Togliatti plant, the social aspect makes the situation more complicated. To resolve the employment problem, two AvtoVAZ subsidiaries, AvtoVAZ-Perspektiva and Reforming Centre, have been established for the 15,000 sacked AvtoVAZ employees.
The first subsidiary is to retrain workers, and the second to repair and dismantle the old equipment. The Reforming Centre will employ pre-pension age staff who are bound to resign soon.
Besides, Togliatti is becoming a testing ground for a new programme of mono-industry city development in Russia. There are prospects for establishing a special economic zone in the city and a centre for auto sector development on the basis of the AvtoVAZ sci-tech centre and the Scientific Research Automobile and Automotive Engine Institute (NAMI). This may help the sector reach a technology breakthrough and create new jobs. Besides, AvtoVAZ will get rid of its non-core assets: it has put up 44 facilities for sale, including nine recreation facilities, a hotel and stakes in various companies and banks.
The plant will be supported by budget funds. Putin cited a figure of 54.8 billion roubles, of which 38 billion will be used to restructure the plant's debt, 12 billion to update the model line, and 4.8 billion to create new jobs. Meanwhile, 770 million roubles a month is spent now to service the plant's debt. After its financial rehabilitation, AvtoVAZ is expected to go to Renault-Nissan, hitherto its minority shareholder.
Will the French partner help the Togliatti auto giant, and the whole Russian automotive sector, out of crisis? Under the memorandum of intent, Renault-Nissan has promised to provide new technologies. Russian Technologies State Corporation, which controls AvtoVAZ, hopes that the French partner will increase its participation in AvtoVAZ from 25% to a controlling stake. Sergei Chemezov, head of Russian Technologies, says that the issue concerning the companies' portions of the auto giant's authorised capital will be decided by March 1, 2010. It will finally be clear then whether AvtoVAZ's Lada car will acquire a French accent one day.
Svetlana Sukhova
