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18 Mar, 2010 08:38

Avtovaz unveils modernization plan

Russia's largest carmaker, Avtovaz, has come up with a $3.7 billion investment strategy over this decade. On Thursday the struggling car giant expects to receive the government's go ahead.

The ministries of trade and economic development have already thrown their weight behind the growth strategy. Andrey Klepach, Deputy Economic Development Minister, says the time for change is now.

“The major part of our car industry is not competitive. And therefore we have at most 3-4 years to carry out a serious overhaul of key enterprises and to move away from assembling cars to deeper localization and full-cycle production at factories owned by foreign brands. For Russian producers it means new models and new technology.”

Avtovaz is planning seven new models and to cut costs by sharing car production and distribution with French partner Renault. That will trim marginal costs by 10% from 2013. But so far, the proposed savings are not enough to offset the loss of import duty. The duty helps make Ladas cheaper than imported cars, but it's of little help to Avtovaz while sales volumes remain depressed.

Graeme P. Maxton, Automotive author for The Economist, predicts serious lag time before recovery happens.

“I think it's going to be at least five years until the market begins to come back to normal."

Analysts say the government needs to choose between supporting historic national automakers and opening the car industry to foreign technology and competition.

“What you are trying to do is hope that you can have your own industry and also foreign companies. So there will come a very difficult question at some point. Do you sell the Russian companies to foreign companies and have the industry that is foreign owned or do you actually promote domestic companies properly?” says Maxton.

Avtovaz must be careful, analysts warn, not to plough further billions into out-of-date car technology.

So far Avtovaz has said no word about hybrid or electric cars. There's a growing gulf between the models it plans for Russia and, for example, the electric models that its partner Renault plans for the French market.