Moscow analysts maintain AvtoVAZ’s involvement with the Renault-Nissan alliance will see it far less vulnerable to supply chain fluctuations as the Russian automaker looks to bounce back from disappointing recent results with a raft of new models and cost initiatives.
AvtoVAZ has the twin advantages of both being part of the Franco-Japanese alliance, but also can look to capitalise on a depressed rouble exchange rate to become far more competitive with overseas suppliers.
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That advantage was hammered home late last year by President Vladimir Putin, who drove Lada’s new Vesta model in the company of AvtoVAZ CEO, Bo Andersson and wasted no time highlighting one of the very rare economic rays of sunshine presently permeating the Russian auto sector.
“Localisation is at 70%: some of the parts are still supplied from abroad, but for the most part, it’s not a bad thing,” said Putin. “Right now, everything in the global car industry is based on cooperation and the Lada is following the same path. But 70% of localisation in Russia is a very good indicator.”
AvtoVAZ’s formerly highly-integrated supply chain has been influenced by its entry into the Renault-Nissan alliance, maintains the EURussia anlayst, with the parternership starting in 2008 when the French automaker took a 25% stake in the Togliatti manufacturer, followed by a ramping up to 67% last year.
In collaboration with the Renault-Nissan alliance, AvtoVAZ produces vehicles at the Togliatti plant, one of the world’s largest auto factories, in the guise of four brands: Lada, Renault, Nissan and Datsun.
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By GlobalData“I am not so much concerned about the localised content as such, but they [AvtoVAZ] are still dependent on certain suppliers and they had already issues – they had to stop their conveyor-belt because of issues with suppliers,” EURussia managing partner, Ivan Bonchev told just-auto from Moscow.
“They have been pretty vertically integrated – they [these] have been the weak points in the supply chain. Now, they are much less dependent on them and are much more integrated with the Renault-Nissan purchasing organisation.
That body – the AvtoVAZ Renault-Nissan Purchasing Organisation (ARNPO) – claims it will become Russia’s largest auto industry buyer and will be responsible for parts, equipment, tooling and supplier quality.
Despite the purchasing advantages of ARNPO, AvtoVAZ last week unveiled unveiled a 12-month operating loss of RUB24.7bn (US$328m), compared to RUB10bn in 2014, but despite cutting staffing numbers still remains a massive employer in Russia, particularly with the supply chain taken into account.
“AvtoVAZ is a huge employer and if you take all the suppliers and dealers, it is a pretty sizeable number,” added Bonchev. “In terms of jobs it is probably somewhere in the region of 70,000-80,000 people, if not more.”
The Moscow analyst noted there was still, in his view, no long-term industry strategy from the Russian government, particularly with The Kremlin’s accession to the World Trade Organisation (WTO).
“There are some short-term quality fixes and support programmes, but t is still not clear what would happen beyond 2020 and even earlier when Russia will be fully integrated with the WTO,” said Bonchev.
“Import duty rates are supposed to go significantly down on vehicles in general and spare parts. If the government wants the industry to be at least not a sizeable player, but a significant player, on the overall industrial market, they will have to continue supporting the sector and on a global scale.
“It is obvious the industry is highly supported both in Europe and the US. It is not a question of only ownership, it is a complex of political, economic factors.
“The [Russian] auto sector has been one of the showcase industry sectors where the government has continuously shown an effort to make import substitution important in recent months.”
Russia has endured more than a year of plunging sales, with overall purchases tumbling 36% during 2015, although Moscow recently unveiled a RUB50bn raft of initiatives to stimulate the sector, through lower credit and investment support among others.
AvtoVAZ was not immediately available for comment.
