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10 Nov, 2009 19:29

Avtovaz turnaround plan awaited as carmaker buckles

A rescue strategy for Russian carmaker Avtovaz is expected soon, with funding proposals to help the company overcome crippling debts, develop new models and manage thousands of potentially excess employees.

The government hopes to present a rescue strategy for Avtovaz next week, but is still trying to press key shareholder – and French carmaker – Renault to increase its investment. Renault currently has a 25% stake in the beleaguered Russian company, and First Deputy Prime Minister Igor Shuvalov said the government would welcome it taking a bigger share, as this would provide more funds to cover the car maker's debt.

“Avtovaz has a partner, Renault-Nissan, and we think that this partnership and Renault’s influence in the company could grow stronger.”

But Renault is offering technology to support Avtovaz, rather than cash, and has stated it isn’t looking to increase its stake, and adding it doesn’t have the funds available. Ivan Bonchev, Analyst at Ernst and Young, doesn’t think the government will push too hard.

“The government is backing any ailing recovery plan. I doubt that they would make any adverse decisions that would drive away the strategic investor, as obviously Avtovaz needs urgently, capable turn around hands, and Renault is famous for being able to turn around ailing car manufacturers.

A turnaround is desperately needed for the Togliatti based Avtovaz, which is the major employer in the region. A slump in sales over the first 9 months of the year has seen production at Russia’s largest domestic carmaker more than halved. That has the company looking to move more than 27,500 positions off its books.

Earlier this month Prime Minister Putin acknowledged the government was looking for nearly $2 billion to support restructuring and pay off existing short term debts, as well as ensure the longer term viability of Avtovaz with new tooling and an overhauled model lineup. That was after Avtovaz had received more than $800 million in the form of an interest free loan over the summer, which was quickly used up.