Page last updated at 22:38 GMT, Thursday, 2 April 2009 23:38 UK

Putin's last minute bailout for Lada

By Rupert Wingfield-Hayes
BBC News, Togliatti

The Russian company that makes Lada cars has, it seems, been saved from the knacker's yard.

Late last month, Autovaz, which is the largest carmaker in Russia, was on the verge of bankruptcy. It could not pay its parts suppliers and was reduced to making cars with parts missing.

Lada cars
Lada is an iconic Russian brand

About 100,000 Ladas are standing unwanted and incomplete in car lots across Russia.

But now Prime Minister Vladimir Putin has stepped in with a 20bn rouble (£400m; $600m) rescue package.

He told workers at the massive Avtovaz plant in central Russia that their jobs are secure.

He also said that the dramatic fall in the value of the Rouble in recent months means Russian cars are now much more competitive than their imported rivals.

The value of Avtovaz shares leaped by nearly 30% on news of the bailout.

But the elation may be premature.

Lada jokes

Lada is in a very bad state. Mr Putin's rescue package does not even cover the 44bn roubles the carmaker owes to its creditors.

But the problems at Lada run much deeper than that.

Ladas are notorious around the world for their archaic designs and terrible quality.

Even in Russia everyone has a Lada joke.

Question: How do you double the value of a Lada?

Answer: Fill it up with petrol

Question: Why do Ladas have heated rear windows?

Answer: To keep your hands warm when you're pushing it home.

'Awful' Lada

In Lada's home town Togliatti, the problems facing Avotovaz are clear to see.

Automarket in Murmansk
Car sales have fallen sharply in Russia after last year's boom

The taxi from the airport, for instance, is a Mitsubishi with the steering wheel on the wrong side, a second-hand import from Japan.

There are hundreds of thousands of cars such as this on Russia's roads. People pay a significant premium to buy them.

"This car is wonderful," explains the taxi driver, who previously used to drive a Lada.

"I've had it for two years and it hasn't gone wrong once.

"Before I bought this one I didn't believe there was a car that could be so reliable."

By comparison, his previous car, a Lada "was awful", he says, reeling off a long list of all the parts he had to change in the two years he'd owned the car.

Falling behind

Little wonder that in the last 10 years Lada has seen its market share in Russia collapse.

In 2000, seven out of every 10 cars sold in Russian were Ladas.

Today it is two out of 10.

Lada's decline has come at a time when Russia's car market has been growing fast.

Last year, car sales here grew by 15%. At the same time, Lada's share shrank by another 6%.

Much is needed

So why can't Lada make a decent car?

I put that question to the manager of a car parts supplier in Togliatti. Vitaly Christ now runs an American owned factory than makes exhausts for Lada, General Motors and Ford. But he used to work for Avtovaz.

"Basically, nothing has changed there since the Soviet era," he says.

"Lada needs to be completely restructured.

"It needs new models, new technology, but most of all it need new management, and to drastically slash its workforce."

But that will not happen as long as it keeps getting government cash, Mr Christ says.

A recent editorial in the popular online Russian newspaper suggested senior Russian government officials should be forced to drive Ladas.

"If you rescue this plant from total ruin at the tax payers' expense," it said "you should also have to travel in their cars."

But as any resident of Moscow knows, no Russian government official would be seen dead in a Lada. Like a growing number of ordinary Russians they prefer to drive imported cars.

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