Bloomberg News

Russia May Expand AvtoVAZ’s Hometown Into Aerospace Center

November 09, 2009

Russia’s government may aid the hometown of OAO AvtoVAZ, the country’s biggest carmaker, by encouraging aerospace-industry development in an effort to stave off job losses, First Deputy Prime Minister Igor Shuvalov said.

Authorities may set up a special economic zone and promote plane-component manufacturing in the region, Shuvalov, who leads the government group overseeing the automaker’s rescue, told reporters today in AvtoVAZ’s headquarters city of Togliatti.

Prime Minister Vladimir Putin said on Nov. 5 that AvtoVAZ needs investment of 5 billion rubles ($174 million) to produce “competitive” cars, in addition to 54.8 billion rubles of aid the government has already pledged to the unprofitable company. AvtoVAZ, which is 25 percent-owned by French auto manufacturer Renault SA (RNO), said in September that it may need to lay off 27,600 employees, or more than a quarter of the workforce.

The government will help retrain AvtoVAZ workers, and the carmaker won’t resort to mass firings, Shuvalov’s office said in a statement on Oct. 28. Renault Senior Vice President Christian Esteve, an AvtoVAZ board member, said a week ago that any job cuts will take place in about 18 months.

“There will be no firings,” Shuvalov said today after touring potential sites for the zone. “We will instead create new jobs and open new directions at AvtoVAZ and invest in specialists and equipment to make that happen.”

AvtoVAZ has just created two subsidiaries that may be able to take as many as 15,000 employees who are close to retirement age, Shuvalov said, without specifying what the subsidiaries would be working on.

Break-Even Point

The Russian carmaker is likely break even once the workforce is reduced and annual sales reach 500,000 vehicles, Esteve said on Nov. 2. Boulogne-Billancourt, France-based Renault plans to maintain its holding and will offer aid in the form of technology rather than cash, he said at the time.

Russian nine-month sales of new cars and light commercial vehicles fell 51 percent from a year earlier, according to the Moscow-based Association of European Businesses. AvtoVAZ’s Lada remained the most popular brand, even after deliveries dropped 44 percent to 269,514 units. AvtoVAZ’s domestic sales last year totaled 622,000 vehicles.

President Dmitry Medvedev set up a commission in June on revamping the economy, naming fuel efficiency, nuclear power, space and telecommunications, medicine and computing as areas for technological improvement. The program includes establishing a state-run venture-capital fund, special economic zones and information-technology parks as part of an effort to reduce Russia’s dependence on the oil and gas industry.

The government aims to retain domestic control of AvtoVAZ, Shuvalov said through a spokesman on Nov. 4. The state and Moscow-based investment bank Troika Dialog each own 25 percent stakes of AvtoVAZ.

To contact the reporter on this story: Yuriy Humber in Togliatti, Russia, via yhumber@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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