The alliance between Renault-Nissan and AvtoVAZ takes another step forward with the announcement of a new joint purchasing organisation based on the principles of the existing Renault-Nissan purchasing unit.
IHS Automotive perspective | |
Significance | The alliance between Renault-Nissan and AvtoVAZ has been further cemented with the companies announcing the establishment of a joint-purchasing organisation for all three companies activities in Russia. |
Implications | The new common purchasing organisation will be jointly owned by AvtoVAZ and Renault-Nissan and has been established to make best use of the scale that the will be generated by the three companies working together on vehicles sharing common architectures and common manufacturing facilities. |
Outlook | This is another important step towards the full integration of AvtoVAZ into the Renault-Nissan alliance, with the final transfer of ownership of Russia's leading passenger car maker to the French-Japanese alliance due to take place next year. Renault-Nissan and AvtoVAZ are aiming for a combined share of 40% of the Russian market and this joint purchasing programme will maximise the potential synergies and profitability from such scale. |
The Renault-Nissan alliance and AvtoVAZ have announced that they are to establish a common purchasing organisation (CPO) which will supply the activities of all three companies activities in Russia, according to a company press release. The new CPO structure will be equally owned by AvtoVAZ and the Renault-Nissan Purchasing Organization (RNPO) on which the new CPO for Russia will be modelled. The RNPO was established in 2001, two years after the alliance between Renault and Nissan was agreed, and has been extremely successful in lowering the purchasing costs of both companies and unlocking synergies. The RNPO is the largest joint entity in the Renault-Nissan alliance and it covers all purchasing activities of both Renault and Nissan worldwide. The CPO will generate significant savings for the three partners in Russia thanks to increased volumes and better pricing with suppliers, using the established techniques and methods which saw RNPO generate EUR851 million in cost-saving synergies in 2012, which accounts for about a third of all synergies accounted for which result from the relationship between Renault and Nissan.
The techniques that the new CPO will employ which will be taken from the Renault-Nissan's existing operation include communicating "a common position to suppliers on quality, costs and delivery deadlines, as well as develop relations with suppliers in order to increase parts localization in Russia". The press release also said that the CPO will attract global companies to the AvtoVAZ and Renault-Nissan supplier base, with some of the companies likely to engage in new investments in Russia in order to service the new joint purchasing alliance between the two companies, something that is also being encouraged by the Russian government's Decree 166 automotive industry, a portion of which is given over to encouraging foreign direct investment (FDI) from foreign automotive suppliers in an effort to modernize and bolster Russia's automotive supplier base. Renault-Nissan and AvtoVAZ have appointed Daniel Perry as CEO of the new organisation, which will be based at the alliances headquarters in Togliatti, Samara Oblast. The deal is subject to the usual regulatory approval being granted by the Russian authorities, although this is likely to a formality given that it is a key component in the plan to boost AvtoVAZ's competitiveness.
In a further boost to the integration of Renault-Nissan and AvtoVAZ, Renault's managing director of its Russian operations Bruno Ancelin said that Renault-Nissan will co-finance the upgrade of a third production line at AvtoVAZ's giant Togliatti plant having already helped to upgrade two of the plants lines in order to bring them up to modern standards and prepare them for the new generation of Renault B0 platform based vehicles that are being manufactured at the plant in the form of the Lada Largus and the new Nissan Almera.
Outlook and implications
The alliance between Renault-Nissan and AvtoVAZ is accelerating and the integration between the three companies is becoming ever closer ahead of the scheduled full transfer of control of AvtoVAZ to Renault-Nissan next year through the creation of a new holding company structure (see Russia - France: Japan: 7 December 2012: Renault set to announce majority control of AvtoVAZ, Largus demand outstripping production). In terms of the direct alliance on model development and production, this will soon span five models across three brands being manufactured across three brands – Lada, Renault and Nissan. Investments in this project will total about EUR400 million. The joint purchasing company will initially be tasked with ensuring the purchasing and component costs going into the manufacturing of these vehicles will be as low as possible, therefore maximising the profitability of the new integrated entity operating in Russia. It is also likely that the new purchasing structure will encourage component suppliers that are already supplying the Renault-Nissan RNPO to invest in component production in the Russian market, which will please the Russian government which has introduced policies in recent years which are aimed at significantly bolstering the Russian automotive component industry, which still lags behind the levels of investment that have been made in OEM production sites, which means the ratio of component imports by foreign OEMs into Russia is still relatively high. The implementation of the RNPO agreement will also accelerate the requirement of AvtoVAZ's suppliers to meet Renault-Nissan's quality standards, with the company requesting that 80% of AvtoVAZ's domestic suppliers meet Renault-Nissan's global standards by the end of the year (see Russia: 9 July 2013: Renault-Nissan wants 80% of AvtoVAZ suppliers to meet requirements by year-end).