Blog: Renault and AvtoVAZ
Dave Leggett | 5 June 2006
The basic laws of economics frequently draw rival firms in the automotive industry together. Scale economies mean that partnering with another company can be an effective way to reduce development or production costs. It can also help to get a company a better presence in a sector or part of the world where it isn’t present.
Renault has apparently been involved in talks about future collaboration with Russia’s domestic giant, AvtoVAZ. I was surprised by that news, I must say. As far as I understood things, Renault’s Russian strategy seemed to be unfolding to plan with its Avtoframos venture building the Logan. And AvtoVAZ, under new ownership at the end of last year, has been busy making bullish noises about expanding its output and product range.
So, why would these two be talking about working together (as reported last week)? Underneath the considerable hype AvtoVAZ’s management must know that they need help if AvtoVAZ is to survive. It is losing market share in Russia as consumers increasingly opt for locally made foreign brands and needs better products and an internal cultural revolution to reverse its decline. Renault is well placed to provide AvtoVAZ with technology – it could be engines / component systems, platforms or whole vehicles. That could look like a nice deal for Renault, particularly in the context of AvtoVAZ’s stated plans for more vehicles and more platforms.
Any car firm choosing a partner has to exercise sound judgement though and there are plenty of break-ups due to things not working well. Each relationship is different. Some corporate tie-ups work better if a little distance is maintained and the terms of the collaboration are kept very tight. Others work better on an understanding that both parties will benefit from a deeper relationship that may ultimately form a full union.
From AvtoVAZ’s perspective, Renault looks like a company with good experience in working with others without being too aggressive in style. Shared engineering between Renault and Nissan appears to be working well and it hasn’t exactly swallowed Nissan whole (it is still an ‘alliance’). Renault should be careful though. Investing in the Soviet era remnant that is AvtoVAZ is not something to be considered lightly. Ask GM (which chose to keep its distance).
Indeed, Renault may be covering the bases in Russia by expanding Logan production at Avtoframos anyway.
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