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24 Nov, 2009 19:08

Avtovaz overhaul set for Paris talks

The draft Avtovaz rescue plan will be discussed with Renault during Vladimir’s Putin’s end of week Paris visit after First Deputy Prime Minister Igor Shuvalov thrashed out key details with senior politicians.

Heated talks – that’s how Shuvalov’s aide described the discussions. The Avtovaz plant bankrolls the mono-city of Togliatti – but those social and political issues are now largely solved, but Shuvalov says the question of the carmaker's Business Logic remains an issue.

“There's a real opportunity to turn this auto giant into an all new, modern enterprise. This will take several years to achieve with participation of our strategic partner, Renault-Nissan, which has a blocking stake in the company. We plan to launch the modernization program after reaching agreements with Renault-Nissan."

Key modernization program advisers, Boston Consulting Group, says Russia’s auto industry needs $22 billion worth of investment, foreign technological help, and import protection. VTB Analyst Elena Sakhnova says the decision now facing the government stems from a past failure to identify clear policy outcomes for Avtovaz, and the domestic car manufacturing industry.

“Either you are supporting the domestic industry, or you supporting foreign assembly. So what now Russian government is trying to do is they’re trying to support both. So they allowed domestic assembly, which of course, created huge competition to the domestic industry, and now the domestic industry is dying. So now they are trying, with additional money, to support the domestic industry. But it’s not easy, because not only are they in competition with the assembly plants which have been created, but also with imports.”

Earlier this decade Renault rescued Nissan. But the 18 months it has tied up with Avtovaz has coincided with a global credit crunch and economic downturn which has caught the Russian carmaker between vanishing market share, spiralling financing costs, and the need to both retool and overhaul its outdated range, and restructure its inefficient workforce and management structure.

Experts say the government will do everything to keep Avtovaz afloat. But with the French carmaker already established with an ownership stake the government can see it as a key source of technology, management expertise and possibly even money. And the extent to which it can be coaxed into the role of leading the overhaul of its Russian counterpart is likely to provide the backdrop for Fridays visit.