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1 Apr, 2009 07:52

Major car maker on the road to ruin?

A large proportion of the workforce of Russia's biggest car manufacturer AvtoVAZ could lose their jobs after a dramatic drop in sales, which has already led to a cut in the salaries of 100,000 employees.

Raisa Linakhova has been working for AvtoVAZ for nearly four years. Since the crisis hit this giant corporation, her salary was reduced to just about 9000 roubles per month, or approximately $250.

Raisa, her husband and their six-year-old boy are now forced to live in the same flat with her parents.

“We're not living, we're surviving, but there's no other way. There aren't any other available jobs in the city, that's why everyone is so keen to work here,” Raisa confesses.

The population of Togliatti is over 700,000, with more than 100,000 of whom work for AvtoVAZ.

Although it is the biggest car manufacturer in Russia, last January the company produced only 30,000 cars, which is nearly 80% less than the same time last year, before the crisis began.

The company has more than a billion dollar debt to its suppliers and was forced to reduce the working hours and the salaries of its employees.

Despite the financial difficulties AvtoVAZ has managed to keep its staff. Most of them may have to work less and get paid less than they used to, but they still have a job.

With roughly every seventh person in Togliatti working at the factory, it is clear that the closure of AvtoVAZ may cause a social catastrophe. That's why the government is taking some concrete steps to help it pull through.

According to the Russian Prime Minister, who personally visited the production site on Monday, the company will receive nearly one billion dollars in an interest-free loan from the state and short-term loans from VTB and Sberbank.

In April, the government will also allocate another $860 000 out of the state and regional budgets for the country’s regions to be able to purchase specifically Russian-made cars.

However, Prime Minister Putin stressed that despite the government's help companies themselves have to make an effort.

“Management and the owners of enterprises should work intensively and make the sector in general and their own businesses stabilize, while keeping the post-crisis period in perspective. Now, at least, I think they should reduce production costs,” the Prime Minister stated.

Aleksey Shamanin is a test-driver for AvtoVAZ. The cut of production caused his working hours to be reduced to six per day, and his salary to be cut by 1/3.

He says the whole company hopes these loans from the government would help, but not everyone is so optimistic.

Sergey Novikov used to be employed at AvtoVAZ, but he has been working in the car retail business both in Russia and the United States for more that a decade in his own company. Sergey has a different idea on how the Russian car manufacturer can survive.

“These loans are not enough to cover AvtoVAZ’s debt. That's why this strategy is not effective. AvtoVAZ needs a general distributor which will pay for production one year in advance, and then the company will be able to focus only on making cars,” Novikov explained.

AvtoVAZ is in a truly complicated situation – something that would have been impossible to imagine just a year ago, when the company saw record-highs in production.

Despite criticism from some skeptics, its management says that the help given from the government will allow the company to get over these difficult times, letting more that 100,000 people to keep their jobs.

First Russian car producer to fall into oblivion due to crisis

Much like AvtoVAZ, another Russian car producer – IzhAvto – is facing troubled times. The Izhevsk plant, owned by the SOK group, is on the verge of closure.

The reasons behind it are the bitter economic situation and the devaluation of rouble. Under these circumstances it became unprofitable for them to purchase KIA vehicle sets from Korea, which has blocked the entire work of the plant.

The asset management has refused to comment on the issue. However, it has come to light that the SOK group plans to fire 5,000 of 5,500 employees.

Once the staff have been let go, production will be frozen indefinitely

IzhAvto’s collapse could be the first instance of a major Russian plant closing due to the crisis.