Lada cars have been a symbol of Russia’s self-reliance ever since they first rolled off the assembly lines in the depths of the Cold War.
Lada factories came to a halt on Wednesday as Western sanctions starved its parent company of the parts and supplies it needed to make cars, according to people familiar with the matter. Thousands of workers have been furloughed.
The disruption shows how the Russian economy is beginning to feel the bite of Western sanctions imposed on Moscow after Russian President Vladimir Putin moved to invade Ukraine. Russia’s exclusion from the Swift interbank payments system has made it difficult for Russian companies to deal with suppliers. Supply routes, especially via Ukraine, are closed, and the devaluation of the ruble has made paying for parts from outside Russia much more expensive.
Such a stop was once unthinkable. Back in Soviet times, Lada’s parent company, AvtoVAZ, erected a giant factory on the banks of the Volga, capable of feeding a local supply chain.
Today, however, AvtoVAZ is owned by French automaker Renault SA and the Togliatti plant relies on a Renault plant in Romania for sub-assemblies and components. More than 20% of AvtoVAZ’s parts – from connectors to key electronic components – come from outside Russia, people familiar with the matter said.
“If the trade stops, AvtoVAZ stops,” said a former AvtoVAZ board member. “Putin knows he can’t do it alone.” It would take months or even years to restart production without Renault’s support, the former board member added.
An AvtoVAZ spokesperson said the company plans to idle its factories until at least March 11 due to the global chip shortage that has affected automakers around the world. He declined to comment on the sanctions.
Workers who do not wish to use their vacation days will receive part of their monthly income while on leave, the spokesperson said. Employees working in the production and distribution of spare parts, as well as customer service, will maintain a full work schedule during this period. The spokesperson added that the company was doing everything possible to resume production as soon as possible at the Togliatti plant and at another plant in Izhevsk, 700 miles east of Moscow.
Russia faces a shortage of new vehicles if automakers like AvtoVAZ remain paralyzed. Lada is the only Russian brand with a significant market share, accounting for 21% of auto sales in Russia last year, and many foreign automakers have suspended vehicle production at their factories in Russia. The country has around 46 million passenger cars, which are on average almost 15 years old, according to Thomas Besson, an analyst at brokerage firm Kepler Cheuvreux.
“They still have to move, whether the country is at war or not,” Besson said. “It still requires someone to make the cars. AvtoVAZ is one of the companies with the highest degree of local integration.
Lada and AvtoVAZ are also part of the Russian national psyche, as is General Motors Co.
in the United States “For Russia, Lada is a symbol of the rise of the industry,” said Nikita Novikov, editor of the automotive publication speedme.ru.
AvtoVAZ was founded in 1966 when the Soviet Union built a gigantic factory on the banks of the Volga and renamed the city that grew around it in honor of Palmiro Togliatti, then leader of the Italian Communist Party . The factory spanned 1,000 acres, more than New York’s Central Park.
In the early years, she sold all her production on the domestic market. Russians often had to wait years for a car. The brand has become known worldwide for its durability and enjoyed golden years with the iconic Lada Niva, a square vehicle that some consider a precursor to the modern SUV.
Lada cars were often unreliable, but their simple design made them easy to repair.
“I drove my own car, I fixed it myself, I didn’t take it to a garage. It was cheap to fix, cheap to drive, simple to maintain and comfortable,” said said Vadim Ivanov, 57, a street cleaner who lives in the village of Bolshaya Izhora outside St. Petersburg and has owned five older-generation Lada models.
By the mid-2000s, however, AvtoVAZ was struggling with problems familiar to many large Russian companies: endemic corruption and a lack of productivity and investment. In 2007, Russia put a stake in AvtoVAZ up for sale, which was bought by French automaker Renault.
When Renault executives first visited the huge AvtoVAZ factory in Togliatti, they were surprised by what they saw.
“The machines were like Detroit in the 1920s,” said a former Renault executive who was on the AvtoVAZ board. “Everything was manual. There were no robots.
Production lines — rather than being arranged in a serpentine fashion like in European and Asian factories — were straight and long, the former executive recalled. “If you stood at one end of the line, you could see the curvature of the earth,” he said.
Renault executives set to work modernizing the plant. For years, the French automaker has chartered a jet to ferry its employees from Paris to Samara on the banks of the Volga every Monday morning and back to the French capital on Thursday evening. Renault employees took part in building a new production line and redesigning the brand’s products. They have also worked to root out corruption and improve the supplier base.
“For Putin, it’s also seen as a success, and it’s visible to everyone: when people see the cars on the street, they can see the change in quality,” said Patrick Pelata, former chief executive. from the French car manufacturer. “You still have a lot of old Lada cars, and when they see the new people see the change.”
Today, the Togliatti plant employs approximately 32,500 people. The plant manufactures a number of Lada models, including the XRAY, Largus and Granta. It also manufactures vehicles for the Renault brand.
Last year, AvtoVAZ sold around 350,000 vehicles, representing 12% of cars sold by the French automaker and making Russia its second largest market behind France. Renault’s operations in Russia made a net profit of 166 million euros, or about $181 million.
Over the past two weeks, investors have feared Renault could lose business in Russia, sending the French automaker’s share price down more than 35% since mid-February.
Adding to the pressure is the fact that Rostec Corp., a Russian state-owned defense and industrial company, owns the 32% of AvtoVAZ that Renault does not own. The Rostec CEO is a close friend of Vladimir Putin and has been sanctioned by the US and the EU since Russia seized Crimea in 2014.
“We are obviously worried,” said someone close to Renault. Losing the Russian business “would be a total disaster,” the person said.
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