AvtoVAZ Togliatti – 'monotown'

By: Dave Leggett - 12 March 2010 15:06

Is the Russian car market going to bounce back when it gets its own clunkers scheme? There must be a few people praying that it will – not just the OEMs looking at under utilised production capacity, but also a few people in Russia's government.

The position of AvtoVAZ is especially acute. The thing is, it is very far from being an ordinary company in dire financial straits – it is most definitely an extraordinary one. An accountant may say that, with its massive debts and 30% capacity utilisation it needs massive restructuring (layoffs). Maybe, but the local economy of Togliatti is totally dependent on AvtoVAZ. One way or another work has to be found for the bulk of the AvtoVAZ plant's workers or there is the risk of political unrest.

Togliatti is one of four hundred so-called ‘monotowns’ throughout Russia where a single industry employs most of the population. Their dangers became clear last April in Pikalevo, south of St Petersburg. When a slump in metals prices closed the town’s aluminium factory, desperate workers blocked a motorway. Vladimir Putin flew in and forced owners to reopen the plant.

I'd guess that the powers that be will want to manage the AvtoVAZ situation so that it doesn't get out of control. That might mean a combination of resettling people in other places as well as striving to find work for Togliatti. But you'd think that employment prospects at AvtoVAZ are going to be in decline whatever happens. The social/political dimension to what goes on with AvtoVAZ is probably at least as important – in Russia – as its business status. For Renault, being involved in the rescue of AvtoVAZ is something that comes with big risks, but it does seem that the Russian government is prepared to go the extra mile – and dip into its resources - to keep things on an even keel in Togliatti. In those circumstances it could yet turn out to be a very sound investment, provided the Russian economy and market does eventually come back.

RUSSIA: AvtoVAZ targets 1.2m cars a year