The biggest automaker in Russia is the AvtoVAZRenault- Nissan Group with a 30.6% market share in 2012, way ahead of the next largest player, the Volkswagen Group (10.9%) and General Motors (9.1%). Even without Renault and Nissan sales in its total, AvtoVAZ’s Lada brand still manages to be easily the country’s number one nameplate with just under 18% of the market. The carmaker sold 608,205 Lada vehicles in 2012 in the CIS, of which 537,600 were in Russia.
Renault has its own plant, Avtoframos, which builds the Duster, Logan, Sandero, Fluence and Mégane models. The company holds 94% of the suburban Moscow facility, with the remainder owned by the city council. Prior to Renault’s investment in the late 1990s, Avtoframos built Moskvitch cars and Kamaz trucks as well as Kharkov tractors.
While Avtoframos remains an important operation for Renault Group, by far the largest investment in Russia by the company, and its alliance partner Nissan, is AvtoVAZ. The maker of Lada vehicles says it is aiming for annual production of one million cars by 2017, though to attain that goal it must continue to add several new model series to its current output at Togliatti, the giant manufacturing complex built in the 1960s.
A cash injection of US$742 million from Renault- Nissan into a joint venture with AvtoVAZ investor Russian Technologies State Corporation is set to give the French and Japanese firms an eventual 74.5% stake in AvtoVAZ by mid-2014.
Once hugely inefficient and a symbol of all that was wrong with Russian industry, AvtoVAZ has been turned around in recent years and posted a net profit of RUB29 billion (US$920 million) for 2012 - over four times higher than its profit for the previous year.
The first step in the rebuilding and ongoing expansion of the Lada brand was the launch of the Granta, a small sedan which uses the Renault B0 platform from the first generation Dacia Logan, itself derived from the second generation Renault Clio. A major investment was made at the Togliatti plant to build this replacement for the long-running 2105-2107 series. The car, which went into production in November 2011, is powered by a Renault-derived 1.6-litre four-cylinder engine.
Granta production not only takes place at Togliatti but also at the IzhAvto plant in Russia’s Udmurtia region, which AvtoVAZ bought during 2011. The company said in December 2011 that it would plough €4 billion into the facility, lifting production capacity to 300,000 vehicles per annum. Granta assembly began there in June 2012.
Following the launch of the Granta, AvtoVAZ recently replaced its big-selling but aged Kalina models. These small five-door hatchback and wagon models, each of which premiered at the Moscow motor show in August 2012, are based on the Granta sedan. Series production of both began at Togliatti in May with the first customer cars delivered in June.
Suppliers follow Renault-Nissan investment
JATCO, the transmission maker co-owned by Nissan (75%), Mitsubishi Motors (15%) and Suzuki 910%) last year became the fi rst supplier of automatic gearboxes for a Lada vehicle. The fi rm began shipping the fi rst four-speed transmissions from its Fuji Area No. 4 plant in Japan to Togliatti. AvtoVAZ started fi tting these gearboxes to the Granta sedan in August 2012. The contract, which is for 80,000 units per year, was the fi rst business JATCO had agreed with a Russian company.
Until recently, most suppliers largely shipped to Russia from other countries but production of the first Nissan model (the Almera) within the AvtoVAZ Togliatti complex has encouraged some vendors to establish local operations. Sanoh is one such example, having brought a factory in Togliatti on-stream in February. The tubing maker says it plans to open two further sites this year. Kinugawa Rubber also plans to build a plant in Togliatti, its first in Russia. The firm intends to begin making automotive sealing parts for Nissan by the end of fiscal 2014.
The example of how AvtoVAZ has reinvented its supply chain, illustrates the ways in which foreign manufacturers and Tier suppliers continue to influence seemingly all aspects of an ongoing rebuilding of the local manufacturing base. The Togliatti-based group is now integrated with RNPO (Renault-Nissan Purchasing Organisation). As of this year, 25% of all of AvtoVAZ purchases are expected to be made through RNPO, with the aim being to lift this to 80% by 2016.
The purchasing target set for AvtoVAZ by Renault-Nissan may seem ambitious but it isn’t. Already, many outdated Lada models, several of which were launched back in the Soviet era, have been axed and replaced by new models using the Renault-Nissan Alliance’s B0 platform. Traditional Russian suppliers are thus continuing to lose a significant amount of orders.
Leveraging the Renault-AvtoVAZ Alliance
In 2012, Nissan Motor co-signed a memorandum of understanding with Alliance partner Renault, and with AvtoVAZ shareholder Russian Technologies to increase its formerly small stake in the maker of Lada vehicles. Initially it was not clear what Nissan’s intentions might be, as it already had its own production plant in St Petersburg. However, it soon became obvious that the company planned to use some of the enormous unused production capacity at Togliatti to build low-cost cars.
The first product for Nissan to come down the line at the Lada works was the Almera. This heavily modified version of the second generation Nissan Bluebird Sylphy sedan was revealed to the world’s press at the Moscow motor show in August 2012. Production began a slow ramp up in December 2012, with the first cars delivered to buyers three months later.
Nissan engineers, working with others from both Renault and AvtoVAZ, modified the Bluebird for local conditions, with particular attention paid to the suspension, which was strengthened for Russia’s roads. The car also has steel plates on its underside for added protection.
No sooner had the Almera begin to reach Russian dealers than Nissan announced it would launch its revival of the low-cost Datsun brand in Russia with two models to be built from 2014, again using Togliatti as a manufacturing base. The Nissan/Datsun production line at Togliatti has a ‘potential capacity’ of 350,000 units, according to Nissan.
AvtoVAZ-GM: new product for an old partnership
AvtoVAZ may be progressing towards ever greater integration within the Renault-Nissan sphere of influence and ownership but that doesn’t spell the end for a longstanding joint venture with General Motors. The firms are again collaborating for the successor to the Chevrolet Niva, a compact 4x4. Volume production of a new GM-developed model is expected to commence in the second half of 2015.
Last year, 62,981 Chevrolet Nivas were manufactured at Togliatti, a 9% year-on-year rise, and the company says it plans to produce 62,500 vehicles in 2013. In 2012, the directors of the JV approved a US$200 million expansion of the Togliatti plant which builds the model. This will see annual capacity rise from 98,000 to 120,000 units. The AvtoVAZ-GM production facility is separate to others, which build Lada and Renault-Nissan Alliance models.
Although the Association of European Businesses has cut its growth forecast for the Russian market following a recent fall in sales there is optimism. “Market participants are concerned about this situation, and expect continued slow demand before a potential improvement in the second half of the year,” AEB chairman Joerg Schreiber stated in mid- June.
If Russia is unlikely to witness its previous exponential growth rate of 20% in the short-term, most analysts seem to agree with the AEB that the economy and vehicle market will nonetheless post substantially improved performance compared to Europe.
Overall, the consensus is that the market has much potential to return to growth - it has come a long way over the last two-three years thanks mainly to government decrees166 and 566, which have lowered vehicle prices by encouraging foreign OEMs to localise production.
In May 2012, Russian Technologies, a state-controlled weapons major, announced that it would be selling its majority holding in AvtoVAZ to the Renault-Nissan Alliance. The Franco-Japanese group, AvtoVAZ, Russian Technologies and another Russian shareholder, Troika Dialog, signed a non-binding agreement, thus ending many months of speculation over the future of the carmaker. According to this memorandum, the Alliance and Russian Technologies would contribute their respective stakes in AvtoVAZ to a joint venture. This new JV would then take control of AvtoVAZ.
Following an investment of US$750 million, Renault-Nissan is due to own 67.13% of the new JV in mid-2014. This JV will then hold 74.5% of AvtoVAZ.
The May 2012 announcement or something like it, had been expected for some time, Renault having been approved by the Russian government as the buyer of 25% of AvtoVAZ back in 2008. Since that time, a series of investments have been made by Renault in the restructuring of its Russian partner.
The most recent investment by the Alliance will be close to US$300 million, with Nissan contributing a further US$450 million. The Alliance partners are committed to making ongoing, periodic payments until 2014, while the joint venture will acquire investment company Troika Dialog’s entire stake in AvtoVAZ by 2014.