As the foreign second hand car market threatens Lada’s domination in Russia, Avtovaz has initiated a crisis production plan, cutting manufacture by 44%. With inflation bringing the cost of Russian goods back in line with those from abroad, help has come from the government, which solved this domestic problem by increasing import duties.
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The Russian automotive giant Avtovaz, produces around 750,000 Ladas annually, simple engineering and cheap parts have ensured home market domination for many years. However, in the face of foreign competition from the second hand market, Avtovaz has adopted a crisis plan, reducing production by 44% at key facilities.
It also invested $US83 million in research and development last year in an effort to improve the quality of its vehicles. Russian purchasers are demanding better quality because inflation is pushing the price of Russian-made cars ever closer to those of superior foreign imports, which now comprise almost 20% of the cars on the road in Russia.
The company has also entered into a joint venture with General Motors and the transfer of design and production expertise from the world’s biggest carmaker to its Russian partner should see quality improve.
The marque, known as the Zhiguli in Russia, where it outnumbers all other cars on the road, has long suffered from a terrible image in Europe, due mainly to its focus on providing cars that were cheap at the expense of design and build quality.
With inflation this year topping 15% in Russia, the prices of these ubiquitous vehicles have almost doubled, whilst quality has remained unchanged. As cheaper second hand foreign imports return, the Lada’s home market appeal has weakened and sales have been plummeting.
However, help for the company has arrived in the form of the Russian government, which doubled its import duties on second hand foreign cars largely to improve the position of Russian players. This will once more price European imports out of the reach of many Russian motorists, increasing consumption of domestic brands.
Importantly, Avtovaz is not relying on the Russian government’s help alone. The company needs to press on with its efforts to improve quality and price to remain genuinely competitive.
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