Renault’s Russian Lada Division Takes Over Crimeas Auto Market

Posted: March 15, 2015 in Econ 101, Free Trade, Sanctions on Russia Meaningless

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Renault’s Lada Takes Over in Crimea’s Vacated Car Market
Lada Largus Production
A completed Lada Largus automobile approaches the end of the assembly line on a cradle at the OAO AvtoVAZ plant, in Togliatti, Russia. For 2015, AvtoVAZ expects to sell 3,000 Ladas in Crimea. Photographer: Andrey Rudakov/Bloomberg

Feb 26, 2015

(Bloomberg) — Lada, Russia’s biggest car brand, has become a favorite in Crimea after its annexation by Vladimir Putin’s government. Having little competition helps.

OAO AvtoVAZ, the maker of Lada cars, is enjoying booming demand in the Black Sea peninsula after international automakers vacated the contested region for fear of sanctions. Such concerns aren’t bothering AvtoVAZ, which enjoys close ties to the Kremlin even if Renault SA and Nissan Motor Co. control a majority stake.

“We aren’t losing our time analyzing geopolitical issues if they don’t touch us directly,” said Vladimir Stepanov, an AvtoVAZ spokesman. “We have too much work to do.”

 While the Russian manufacturer pushes to take advantage of opportunities in Crimea, Renault is caught in no man’s land and suspended work at its own dealers in the region. The company, which is based near Paris, can’t afford to rein in AvtoVAZ, which is a key part of its expansion in emerging markets. At the same time, Renault is 15 percent owned by the French government, which has been vocal in supporting tougher sanctions against Russia. Renault declined to comment on the activities of its affiliate in Crimea.

The first official Lada dealer opened in October and Crimean customers are now ordering 200 to 300 Lada cars a month, said Andrey Kudrin, director of the dealer. In 2013, when Crimea was part of Ukraine, China’s Geely was the biggest brand, while Lada’s sales totaled only 155 cars, according to Autostat.

“Demand for Lada cars is very high,” said Kudrin.

No McDonald’s

AvtoVAZ Chief Executive Officer Bo Andersson participated in the opening ceremony of the dealership, one of the few official sales outlets in the region. Companies such as McDonald’s Corp. canceled business in the region. Apple Inc. products aren’t available in stores and Google Inc.’s services aren’t accessible on the peninsula.

“European or American car producers won’t risk opening car dealerships in Crimea,” said Oleg Datskiv, chief executive officer at agency. “The market is too tiny.”

For AvtoVAZ — which is partly owned by Russian state-held company Rostec, whose CEO lived in the same Dresden apartment complex as Putin in the 1980s — every little bit helps. As Russia slides into a recession, car sales in the country are forecast to plunge about 24 percent this year after dropping 10 percent in 2014. In Russia, the brand delivered about 387,300 cars last year to grab 16 percent of the market.

For 2015, AvtoVAZ expects to sell 3,000 Ladas in Crimea. That could help the company’s total deliveries rise 1 percent to 2 percent, said Andrey Rozhkov, an analyst at Metropol.

Renault Dealerships

Lada sales in Crimea currently account for about 40 percent of the region’s demand, according to Kudrin. In 2013, it wasn’t even among the top 10 best-selling brands.

While AvtoVAZ expands in Crimea, Renault suspended work at dealerships in Simferopol and Sevastopol and is weighing ways to service clients in the region, said Ekaterina Tretyakova, a Renault spokeswoman in Moscow. She declined to comment on AvtoVAZ work in Crimea, while requests made to Renault’s headquarters in Boulogne-Billancourt were referred to its Russian partner.



Renault-Nissan to take control of Lada-owner Avtovaz

The Renault-Nissan alliance has agreed to raise its stake in Lada-owner Avtovaz to take majority control of Russia’s largest carmaker.

Lada Kalina with an image of Vladimir Putin on the bonnet
Lada has a dominant position in the Russian market

The Renault-Nissan alliance has agreed to raise its stake in Lada-owner Avtovaz to take majority control of Russia’s largest carmaker.

The French-Japanese alliance partners hope the deal will result in closer collaboration between the three and bring about economies of scale.

As part of the deal, Renault and Nissan models could be produced alongside Ladas in Togliatti, Russia.

The deal will come into force by 2014.

A memorandum of understanding to that effect has been signed in Paris, four years after Renault first acquired a 25% stake in Avtovaz.

The deal is structured as a joint venture between Renault-Nissan and state corporation Russian Technologies.

Renault-Nissan will own 67.13% of the joint venture, which in turn will own 74.5% of Avtovaz.

Renault will invest $300m (£185m) and Nissan will invest $450m in the joint venture over the next two years.

“Today’s memorandum is the latest step in an expanding collaboration that helps modernise the leader of Russia’s auto industry,” said Carlos Ghosn, chief executive of the Renault-Nissan Alliance.

A new production line was inaugurated last month in the Togliatti plant, backed by a 400m-euro ($525m; £330m) investment.

The three marques aim to produce 1.6 million cars a year there, which would make it one of the biggest assembly plants in the world.

Global empire

Renault and Nissan are tied together by cross-ownership of shares in each other.

The Renault-Nissan Alliance, if considered as a whole, is the world’s fourth largest carmaker by volume.

Renault holds a 43.4% stake in Nissan, while Nissan holds 15% of Renault shares.

Mr Ghosn has also initiated a number of co-operation agreements with Daimler, the German industrial group that owns Mercedes and Smart.



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