AvtoVAZ making 13,000 redundant as Russian market stalls

AvtoVAZ making 13,000 redundant as Russian market stalls

Only a few years ago, the vast, sprawling factory that is home to AvtoVAZ in Togliatti, apparently accounted for a staggering one in seven of the population in this central western city in Russia.

That meant around 100,000 staff at the automaker out of a citizenship of 700,000, but yesterday's (10 June) confirmation to just-auto, headcount would be slashed to almost half that at 53,000, is a staggering transformation.

Of course, that hasn't happened overnight. AvtoVAZ has undergone several metamorphoses during the past few years as successive ownership structures, both State and private, have attempted to turn the ailing giant around.

Togliatti is - or was - take your pick - a legacy 'monogorod' or 'monocity' so beloved of Soviet Union central planners, who for good measure apparently designated a breathtaking 450 such towns dedicated to the manufacture of a narrow range of products.

GAZ Group in Nizhny Novgorod also springs to mind as a monogorod, but the latest raft of redundancies in Togliatti, once viewed as the largest centrally-planned city and orchestrated by, relatively, new CEO, Bo Andersson, are sure to cut deep into the Samaran town.

Andersson is of course, no stranger to reconstruction. He oversaw GAZ Group's transformation into a successful business and recently told me at the St Petersburg International Economic Forum (SPIEF) how proud he was to see Gazelle vans running around the former Leningrad and Moscow.

Installed at AvtoVAZ for six months now after his surprise move from GAZ, part of Andersson's revamping efforts will include a raft of new models, one of which, the Lada Granta Liftback, the automaker showcased in front of the iconic Winter Palace at SPIEF, but the gentle grumbles of Andersson's dealers in St Petersburg, show there is still some way to go before the ex-GM Swede turns the oil tanker around.

So far, Andersson has enjoyed something of a honeymoon period at AvtoVAZ, but it will be instructive to know what union reaction his latest round of bloodletting will provoke, let alone any opinion in The Kremlin, whose current occupant has previously told the automaker CEO he is 'a smart guy.'

It's difficult to see what other course Andersson could pursue though. Russia is resolutely not a command economy anymore, no matter how President Putin might hark back to what some still in the east view as the halcyon days of the Soviet Union.

AvtoVAZ stands and falls now by the market and that market is looking decidedly shaky.

Only this week the Association of European Businesses (AEB) released yet more gloomy data showing the Russian automotive sector plunged 12% last May for new passenger and light commercial vehicle sales - and that on top of several consecutive months of significant falls.

But AvtoVAZ, along with many Russian manufacturers is having to swim against the tide of high interest rates and capital flight of US$50bn and rising, as confidence drains from the what was once a star performer in the elite BRIC club.

Clearly, Russia's incursion into Crimea, what former European Commissioner, Peter Mandelson, at SPIEF, called an "illegal annexation," has spooked the markets and led to vast ripples of political uncertainty spilling out across international markets.

It's interesting to note though, Putin has been notably less bellicose of late, appearing to row back from what was a pretty hostile stance to the western powers, that evoked so much of the Cold War era in which I grew up.

That feeling of a bygone age was echoed this week by the announcement of further military deployments to States bordering Russia, former Warsaw Pact countries at that, such as the Baltics, Poland and Ukraine itself, that drew a sharp response from The Kremlin.

But all this sabre rattling must seem a world away to the Togliatti workers facing redundancy - despite AvtoVAZ's bold claim the city has the lowest unemployment rate in Russia at a miniscule 0.6%.

"It is a difficult decision," an AvtoVAZ spokesman told me. "Cutting is always difficult because one person, 1,000, it is always difficult. It is a life, a person, his job, his family."

I've not been to Togliatti, but I have travelled to Trollhatten in Western Sweden, whose 50,000-strong town was decimated by the bankruptcy of Saab a couple of years back, and whose situation AvtoVAZ currently echoes to a certain extent.

I remember cafe and restaurant owners telling me of the impact Saab's demise was having on their everyday business, of the families who no longer patronised their establishments, a story I've also heard from trade union leaders in Belgium as Ford shutters its Genk plant with a knock-on effect of potentially up to 11,000 job losses.

Trollhatten is around one hour north of prosperous Gothenburg, whose Volvo headquarters provided some redundant staff with new opportunities, while the Swedish government also stepped in with generous redundancy packages.

But Togliatti? It's 500 miles south east of Moscow on the leviathan Volga river and it's as yet unclear if the Russian government will provide largesse on the same level as its Swedish counterparts.

AvtoVAZ has promised to help, working with the local authorities to help staff into alternative employment, but that is never an easy path.

The automaker is also putting a brave face on its falling sales insisting its drop in numbers was better than the market average and that May's decline of 10% was a massive improvement on April's fall of 16%.

Since its launch, AvtoVAZ says more than 2,000 Granta Liftbacks have been sold and that the model has enjoyed a good reception.

Andersson is equally implementing a whirlwind of productivity improvements, his keen eye misses nothing after so long in the auto business and further models in the pipeline, replete with higher quality standards, may well galvanise stagnant sales.

It's not just Togliatti, Genk and Trollhatten of course. Antwerp with General Motors, Aulnay with PSA Peugeot Citroen and a slew of other OEM and supplier plants have had to rationlise in the brutal downturn.

But AvtoVAZ - in tandem with its competitors and the Russian supply industry - must be pinning their hopes The Kremlin - and their spooked political adversaries in the West - find a way through the current impasse to calm tempers and ease market jitters.

No matter how much some may wish it, the days of the monogorod, central planning and huge Moscow bailouts are not going to feature as part of Russian business life, but there must be times when the 13,000 Togliatti workers wish they were.

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