With General Motors confirming its intention to have a stake in AvtoVAZ, the Russian carmaker has been thrust well and truly into the limelight, writes Pal Negyesi.

Recent auto industry headlines in Russia have mainly centred on the growing flow of inward foreign investment to Russia from GM, Toyota, Nissan and others. Amid all this hoopla it is easy to forget that AvtoVAZ still makes over 900,000 vehicles a year (including complete cars and semi-finished kits) and it is still the largest and most influential player in Russia.

Russia is a booming economy. Wages are increasing, customers' habits are changing. The appearance of bank leasing options make foreign cars even more affordable for many. The USD10,000-USD12,000 segment, in particular, is booming accordingly.

So far AvtoVAZ has been keen to avoid this price bracket.

In late 2004 it introduced a USD9,000 B-segment car called the Kalina. Originally it was envisaged that by 2008 production would surpass the 200,000-unit level. But the reality is that the company would now be happy to reach 150,000 units a year!

Its latest entry, the upper-C-segment - Priora - does indeed sell like hot cakes, but so did the Kalina for about eight months.

The most popular Lada is still the 2105-2107 sedan, otherwise known as the "classic" - a rear-wheel-drive boxy sedan and a derivative of the 1960s Fiat 124 which retails for around USD6,000. There's no competitor in this price segment, save some second-hand Japanese imports.

Earlier this year, when AvtoVAZ slightly raised its prices tens of thousands of new cars piled up at dealerships. Now the situation has reverted to being 'normal' but the company will be very happy to achieve a 5 per cent increase on a market which growing by 30% a year!

To understand the current situation we have to go back two years in time. When state-owned arm exporter, Rosoboronexport took over management of the company it appointed new leaders.

Though these people were fine politicians, they had no clue on how to run an automobile business.

Tales are circulating among suppliers how AvtoVAZ managers called a certain engineering company to order 5 new platforms and about 10 body styles with a delivery time of 2010.

Upon hearing the costs they were shocked and outraged. Since September this year, Boris Alyoshin, an ally of Putin, is president of the company.

Previously he was head of the Federal Industry Agency and it is reported that before he left, he allocated about USD6bn (!) for the development of the Russian auto industry (read AvtoVAZ).

But Putin is a lot more cautious - previous attempts to squeeze money out from the government met with firm resistance from economics minister German Gref. His successor Elvira Nabiullina appears to be following his lead.

AvtoVAZ lookedat trying other options, like talking to Renault and luring in Magna. It even signed a Memorandum of Understanding with Fiat!

And now Sergei Chemezov, chairman of AvtoVAZ and who also controls Rosoboronexport made the smart move of deciding to offer a 25 per cent stake in AvtoVAZ to a foreign company.

It could be Fiat, Renault, Magna or General Motors. Anyone who's willing to tackle a huge challenge of turning around a company which employs 110,000 people.
 
And with doomsayers predicting the disappearance of 'Russian made' cars by 2011, AvtoVAZ needs to reinvent itself pretty quickly.

Pal Negyesi
Editor,
ceauto.co.hu

Pal Negyesi's online resource providing automotive industry news, data and intelligence across the Central and East European region can be accessed at: http://www.ceauto.co.hu/