OAO AvtoVAZ, Russia’s biggest automaker, will seek to borrow as much as 60 billion rubles ($2 billion) by 2015 for its biggest overhaul “in decades” with Renault SA (RNO) and Nissan Motor Co.’s help, to compete against international brands.
“This is the first time in many years, if not in decades, that AvtoVAZ is launching new projects on such a scale,” Chief Executive Officer Igor Komarov said in an interview at the Togliatti headquarters near the Volga River. Prime Minister Vladimir Putin visited the plant last week for the unveiling of the Lada Largus minivan and passenger car, its first model based on a Renault platform.
AvtoVAZ is revamping its vehicle lineup to boost sagging sales as international automakers expand production in Russia. The Russian car market may surpass Germany to become Europe’s biggest in 2014, according to the Industry Ministry. AvtoVAZ aims to hold 25 percent of the market in five years, or 40 percent together with Renault and Nissan.
The plant, which was built in the late 1960s with the assistance of Fiat SpA (F), will more than double output from last year to 1.2 million cars by 2017, Komarov said.
Sales of Ladas slumped 15 percent in the first quarter to 109,388 cars after a government-sponsored car rebate program ended last year, the Association of European Businesses in Moscow said April 9. Nissan increased sales by 52 percent and Renault 27 percent in the period.
The 400 million-euro ($525 million) assembly line inaugurated April 4 by Putin, who returns to the presidency next month, will be able to produce 350,000 vehicles a year under Lada, Renault and Nissan brands.
By year-end, AvtoVAZ will manufacture 27,000 Largus vehicles and produce a Nissan model, with two Renault models planned for 2013, Komarov said. At the end of last year, the factory started making a budget car, the Lada Granta, which is now on sale, to replace its biggest-selling brands, the Classica series and the Samara, next year.
Renault and Nissan, which are seeking a more than 50 percent stake in the Russian carmaker, may agree with the major other owners on the details of the deal this month, AvtoVAZ Chairman Sergei Chemezov said April 4. State-owned Russian Technologies Corp., which holds 29 percent of AvtoVAZ and is headed by Chemezov, plans to hold talks with the French-Japanese alliance’s Chief Executive Officer Carlos Ghosn in Paris at the end of April.
Chance of Success
Renault, which has its headquarters in the Paris suburb of Boulogne-Billancourt, has owned 25 percent in AvtoVAZ since 2008 and owns 43.4 percent of Yokohama-based Nissan, Japan’s second-biggest carmaker.
“I look forward to a rapid and successful conclusion to these negotiations,” said Komarov, who took over the helm at the company in 2009 in the midst of a global recession. “The parties have a real chance of success now.”
Oxana Nazarova, a Renault spokeswoman in Moscow, and Tatiana Natarova, a Nissan spokeswoman, declined to comment.
Renault-Nissan may gain control of the car plant within two years, with the alliance paying in stages as goals are met, Sergey Skvortsov, managing director of Troika Dialog, which has 21 percent of AvtoVAZ that it plans to sell, said in an interview in February.
Troika will take part in the Paris talks, Skvortsov said yesterday through the investment bank’s press service.
No Competing Overlap
Renault paid $1 billion for its 25 percent in AvtoVAZ and a similar amount will be required to raise that to more than 50 percent, given the investments made in the plant, Skvortsov said in February.
AvtoVAZ has gained 21 percent this year, raising the its value to 43.7 billion rubles ($1.5 billion). The shares traded little changed at 24 rubles at 2:24 p.m. in Moscow.
The new 400 million-euro new line is based on the same platform used to make Renault’s Dacia Logan and Sandero models, Komarov said. “We and our alliance partners are devoting a lot of attention to ensure that there is no competing overlap between our models,” he said.
Total investments to 2015 will reach 75 billion rubles, most of which will be financed with loans from state-controlled OAO Sberbank, VTB Group and development bank VEB, Komarov said. The carmaker has started talks with VEB on credit lines for specific projects, he said. The company may also sell bonds to help raise funds, he said.
“Our task is to keep current workforce levels by raising output and increasing productivity,” Komarov said.
In 2009, the state agreed to give AvtoVAZ a 75 billion-ruble bailout loan to avoid social unrest in Togliatti as the company cut its workforce from 102,000 to 66,000 through accelerated retirement and spinning off subsidiaries. The city depends on the factory as its principal employer.
AvtoVAZ will probably generate a profit for this year following a loss in the first half, after the government phased out its rebate program, which had encouraged purchases of new domestically made cars to replace old models, Komarov said.
Lada sales have dropped for the past six months in a row, according to the AEB. The Russian cash-for-clunkers program, which started in March 2010, accounted for almost 40 percent of AvtoVAZ’s total sales in the period, according to Bloomberg calculations.
Komarov will consider the terms the shareholders offer when his contract runs out this year. Before joining AvtoVAZ, he spent about six years as deputy CEO for finance at OAO GMK Norilsk Nickel, Russia’s biggest mining company.
“I am happy to be working with Renault-Nissan,” Komarov said. “I have a very interesting job.”