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Last Updated: Sunday, 2 March 2008, 10:10 GMT
Lada deal highlights Russia's auto boom
By Jorn Madslien
Business reporter, BBC News

The iconic Russian car Lada is set for a revival backed by a partnership agreement between its owner Avtovaz and the French carmaker Renault.

Cars parked in a Russian street
Foreign marques are taking over as Russian brands see sales fall

In Friday's $1bn (500m) deal, Renault acquired a 25% stake in the company.

The deal will elevate the Renault-Nissan-Avtovaz alliance to the number three slot globally after General Motors and Toyota, and as such it is a timely industrial partnership coming just ahead of the Presidential election in the country.

"Renault and Nissan will accelerate the rejuvenation of the Lada brand in Russia, rather than using their new partner as a launch-pad for their own products," says Global Insight automotive analyst Paul Newton.

"It is hoped that Lada's obvious need for new products, technology, and production techniques will result in a positive relationship."

Avtovaz hopes to more than double sales to more than 1.5 million cars by 2015.

The alliance will "preserve and protect the Lada trademark", which should be a "people's automobile", according to Sergei Chemezov, head of the state holding company Rostekhnologia, which owns the remaining 75% of the Avtovaz shares.

Rostekhnologia aims to sell a second 25% stake later this year to stock market investors.

Booming market

Avtovaz used to account for 70% of Russia's car production - but not anymore.

Renault's cash and technology injection is just the latest in a string of billion-dollar investments by global automotive giants desperate to enter Russia's booming car market.

The changes are visible in Russia's streets. In provincial cities, the traffic remains light, but it is growing to the extent that locals have started complaining about parking and queuing.

Renault and Nissan will accelerate the rejuvenation of the Lada brand in Russia, rather than using their new partner as a launch-pad for their own product
Global Insight automotive analyst Paul Newton

Last year, the Russian car market grew 34%, according to PricewaterhouseCoopers, far outpacing both China and India.

By the end of next year, Russia will have overtaken Germany to become the biggest car market in Europe, a fact that Paul Willis, chief operating officer of Kia Motors Europe, describes as "the most startling statistics I have heard in my whole career".

For six Asian carmakers, Russia has already become their number one market in Europe, according to Automotive News Europe.

Toyota, Nissan, Kia, Lexus, SsangYong and Subaru already sell more cars in Russia than in any other country in Europe. Mazda and Suzuki could be next, and Chinese carmakers are also making hay while the sun shines, the paper says.

Local decline

In many parts of Russia, multi-marquee showrooms are commonplace. Dealers stock broad ranges of brands, and it is evident that foreign ones are taking over.

Automarket in Murmansk
Dealers in Russia often stock a range of brands

Last year, sales of non-Russian car marques rose 65% to 1.65 million units, about two-thirds of the cars sold in Russia.

Consequently, the non-Russian brands pushed the market share of Russian brands down to 32%, from 44% in 2006.

However, the Renault deal should go some way to reverse this decline in sales of locally badged cars.

"With the Russian market in boom phase, Renault-Nissan-Avtovaz cannot move fast enough in its attempts to breathe new life into the Lada brand," says Mr Newton.

Russia's other leading carmakers, Severstal-Auto and Gaz also have foreign partners.

Severstal is working with Fiat, SsangYong and Isuzu, whilst Gaz is working with Magna, the Canadian parts supplier.

New factories

But Russia is not just a huge market enjoying explosive growth.

Companies such as General Motors, Ford, Toyota and Suzuki, to name but a few, are desperate to produce where costs are low and demand is soaring, so between them they have invested hundreds of millions of dollars in brand new high-capacity factories in St Petersburg.

As a result, Russia is quickly becoming Europe's biggest car producer, with St Petersburg emerging as Russia's, perhaps even Europe's, version of what Detroit used to be for the US.

And Russia's indigenous carmakers are quickly learning the ropes.

"We cannot ignore Russia," insists Carlos Ghosn - who is chief executive of both Renault and Nissan, and thus fast becoming the industry's third-most powerful leader.

"Russia is probably one of the most coveted markets."

And although they are bitter rivals, the world's automotive executives tend to agree.

SEE ALSO
Renault buys stake in Lada owner
09 Dec 07 |  Business

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