How can Renault help AvtoVAZ?

Seminar of Renault and AvtoVAZ executives, held in Togliatti on 16 July 2010

How can Renault help AvtoVAZ get back on track? How can Renault succeed in Russia with AvtoVAZ? It was to answer those questions that representatives of the two companies' major functions met a couple of weeks ago .

The day before, the Russian government – and in particular Prime Minister Vladimir Putin – had once again proved its commitment to the success of our cooperation by signing an agreement with Christian Estève, the Eurasia Region Leader and CEO of Renault in Russia, that will boost AvtoVAZ's capital without Renault needing to make a cash contribution or reduce its 25% (1) stake.

On the day of the seminar, about 50 of us met in the "blue tower" that dominates the skyline on the huge Togliatti site, perhaps the biggest in the world.

Proceedings opened with a report on AvtoVAZ's sales and financial results for the first half of the year. Lada (2) achieved 29.8% market share in Russia, Renault 5.7% and Nissan 3.6%. That gives a total of 39.1% for the three  brands combined – well ahead of General Motors' three brands (13.6%), Hyundai's two (11.3%) and Volkswagen's (8.9%). AvtoVAZ stopped losing money a few months back, with the help of scrappage premiums (3) but also thanks to a drastic reduction in its fixed and staff costs: more than 30,000 people in a year (4).

Next, Igor Komarov, the AvtoVAZ Managing Director for just over a year, listed his priorities:
    - quality, a vital condition for Lada's revival,
    - cutting the costs of Kalina, its most recent model,
    - upgrading the line that will assemble Lada, Renault and Nissan cars, using the Logan platform,
    - introducing the "Alliance Production Way" (5) at the plant as soon as possible.

Eleven working groups examined these topics, along with a few others topics (6) discussed in recent weeks. The general atmosphere was very constructive.

When each group gave its report in the afternoon, the full potential of our cooperation gradually emerged… as well as all the problems likely to arise if we see it through. A real cultural revolution will be needed for all the AvtoVAZ management, and this will take time, considerable human resources (7), conviction and patience. But there is much to be gained: a three-way alliance covering 40% of what will soon be Europe's biggest market (3.5 to 4 million cars a year forecast for 2015), based on a manufacturing set-up that includes Togliatti, Moscow and Saint Petersburg, buying more than a million parts a year in the long term, sharing platforms and engines… Russia is set to become one of the pillars of our business, in terms of both sales volumes and profitability.

(1) We acquired this stake for €650 million, before the economic crisis.
(2)  Lada is the brand of vehicles made by AvtoVAZ.
(3)  Scrappage premiums were approved by the Russian government in February 2010.
(4)  Over 25% of employees.
(5)  The equivalent of the "Renault Production Way" used in Renault and Nissan's shared plants.
(6)  Engines, purchasing, products, sales, setting up a sales costs department, IT
(7)  Fortunately, we have managed to start a 40-seater shuttle service between Paris-CDG and Samara airports every Monday and Thursday. Adding on the time it takes to travel the 60 kilometresto the plant, this puts Togliatti at six hours from Paris.