Blog: AvtoVAZ - rough diamond?
Dave Leggett | 6 December 2007
It wasn't so long ago that GM execs were pleased to keep AvtoVAZ at arms length. Get too close, people said, and the suckers will be out bleeding you dry and absorbing mountains of cash. The JV is nicely contained, with exposure limited, they said. Smart move, many agreed, five years ago.
Then the Russian market eventually sparked into life on the back of an energy boom and Russia suddenly became much more attractive. OEMs set up assembly operations and some soon found they can't build quickly enough to meet demand.
But things still looked pretty grim for AvtoVAZ, appearing increasingly like a dinosaur with no money for new product - its days therefore numbered as consumers vote with their feet for international brands now made in Russia.
So, what's changed? Why are Western carmakers now falling over themselves to invest cash in AvtoVAZ?
One word: Putin. He's going nowhere and is getting his way in Russia wherever you look. And he has let it be known that he won't let AvtoVAZ fail. One way or another, the thinking goes, AvtoVAZ will remain a major player in Russia's car industry in the future.
So, besides the usual advantages of distribution/scale in being hooked up with a big domestic player, there's also the intangible political usefulness of being strategically allied via a stake - a putting-the-money-where-the-mouth-is business commitment. In Russia, that might well turn out to be money well spent.
One thing though. Whoever gets a stake will have some execs who will have to quickly get used to drinking vodka in pretty big quantities. Losers can at least console themselves that their livers will be grateful.
Renault has signed an agreement to buy 25% of AvtoVAZ, Russia's largest carmaker, for over $US1bn....
I'm starting to get a small idea of the scale of things here in China, but really, I'm only scratching the surface of this vast country....