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Russia's biggest car maker teams up with Renault

State-run arms export group Rosoboronexport, which currently owns 75% of the Russian car giant Avtovaz is to sell a 25% stake in the car-maker to French auto-manufacturer Renault, with a view to forming a strategic partnership.

Embattled Russian car-maker, Avtovaz, has chosen the French company,  Renault, as its strategic partner after considering a range of offers.

The announcement comes after many foreign car-makers including GM, Fiat and Magna had expressed an interest in taking a stake in the company. Avtovaz will now reportedly offer Renault a blocking stake of 25% of its shares.

Mickael Pak, motoring analyst for IFD Kapital, said the announcement is a surprise and that the new strategic partnership has a lot of work ahead of it.

“Renault has very aggressive plans, but Renault’s Logane is the main competitor to Avtovaz' Ladas, and I don't see at this point how they will deal with the problem,” Pak said.

Avtovaz has been plagued by long-term problems, including a falling market share and management difficulties. This has seen Russian state arms exporter Rosoboronexport come in to try and turn the company around by taking control of the company.

Avtovaz chairman Sergey Chemezov said two possible solutions were investigated.

“We had a choice of building a new factory from scratch or creating new production facilities at the existing site.  We came to the conclusion it would make more financial sense to upgrade the current plant,” Chemezov said.

But Renault chief Carlos Goan, who traveled to Togliatti for the signing, surprised some analysts by promising to prioritise LADA over its own brand.

“We new Lada wanted treatment as a partnership, mutual support and a mutual win-win.  And this is something that we were able to demonstrate in the past through our alliance with Nissan,” Mr Goan said.