By Ilya Khrennikov
(Bloomberg) — Prime Minister Vladimir Putin is betting a Formula One sponsorship and his friendship with Renault SA Chief Executive Officer Carlos Ghosn can help revive OAO AvtoVAZ, Russia's biggest automaker.
Putin said Russia agreed to sponsor the country's first grand prix racer, Vitaly Petrov, after a meeting with Ghosn in Moscow yesterday. Petrov, 25, was chosen in January to lead the French company's F1 team this season.
Petrov's car and uniform will sport AvtoVAZ's Lada trademark when he debuts in Bahrain this month, though the financial details of the deal haven't been determined yet, Putin's spokesman, Dmitry Peskov, said by phone in Moscow today. Renault owns 25 percent of state-run AvtoVAZ.
AvtoVAZ foray into Formula One comes amid the worst slump in global car sales in decades, which makes it harder for competitors with bigger budgets to justify the expense of maintaining a team. Honda Motor Co., Bayerische Motoren Werke AG and Toyota Motor Corp. have all left the sport since the crisis started in 2008.
"Companies who advertise with Formula One want to associate themselves with speed, innovation and high-end technology, none of which the Lada has," said Oleg Datskiv, founder of Auto-Dealer.ru, a Moscow-based industry research group. "Even Europeans know this car is outdated, unreliable and of inferior quality."
Putin's decision to promote no-frills Lada sedans abroad comes after sales plummeted to a 13-year low last year amid Russia's steepest economic decline on record. The company expects to break even this year after a "significant" loss in 2009, CEO Igor Komarov said last month.
AvtoVAZ, based in Togliatti, the Volga River city renamed after an Italian communist in the 1960s, plans to increase production 51 percent this year to 446,000 cars, almost all Ladas, after cutting 24,000 workers, or about a quarter of its staff, and receiving 65 billion rubles ($2.2 billion) in financial aid from Putin's government.
First Deputy Prime Minister Igor Shuvalov, Putin's point man for the AvtoVAZ bailout, in November lamented the quality of the carmaker's vehicles and vowed to "transform the company."
Petrov, who started racing Ladas near his hometown on the Finnish border a decade ago, said after talks with Putin and Ghosn yesterday that the F1 deal would help make Lada "a popular global brand."
"The Lada is probably the only Russian consumer good that's still being sold in the West," said Igor Burenkov, a spokesman for AvtoVAZ, by e-mail. "We're modernizing our facilities and trying to improve car quality," Burenkov said.
Datskiv of Auto-Dealer.ru said "it makes no sense" to advertise Lada outside the former Soviet Union because demand is so low. AvtoVAZ sold about 7,300 Ladas in Europe last year, versus 7,000 in 2008, according to the company.
"Only the friendly relations between Putin and Ghosn made this Formula One deal possible," Datskiv said.
To contact the reporter on this story: Ilya Khrennikov in Moscow at email@example.com.