Renault-Nissan has finally completed the full takeover of Russia's largest carmaker which should allow the alliance to accelerate its plans for the expansion in the Russian market.
IHS Automotive perspective | |
Significance | Renault-Nissan has formally completed the process of acquiring a majority stake in the new holding company structure that controls Russia's largest carmaker AvtoVAZ. |
Implications | The completion of the deal means that Renault-Nissan can accelerate its strategy to turn the loss-making AvtoVAZ around, while increasing the number of Renault and Nissan brand models in offer in the Russian market based on common platforms and component sets, while using the AvtoVAZ production network. |
Outlook | The completion of the deal will come as a relief to Renault-Nissan alliance CEO Carlos Ghosn and no doubt to AvtoVAZ's other shareholders as the future of the company depended on it forming a fully integrated alliance with a major global OEM. However, there are still major obstacles to AvtoVAZ and its Lada brand becoming a successful self-sufficient company, not least the moribund state of the Russian domestic market and Russia's deteriorating international relations |
The Renault-Nissan alliance has formally completed a deal to take control of Russia's largest carmaker AvtoVAZ, which builds cars under the Lada brand, according to a Reuters report which confirmed the news with Renault. A Renault spokesperson said the legal completion of the deal had occurred on 18 June and that Renault-Nissan now owns 67.1% of the holding company structure that controls AvtoVAZ. The holding company, which has its remaining shares held by Russian state industrial investment company Rostekhnologii (Rostec), in turn controls a 74.5% stake in AvtoVAZ. The deal completes the process that was initiated back in 2012 (see Russia: 13 December 2012: Renault-Nissan signs deal on AvtoVAZ ownership) when a new joint venture (JV) holding company was created as a vehicle for Renault-Nissan to eventually take full control over AvtoVAZ, having first acquired a 25% stake in the company in February 2008 for USD1.17 billion.
According to the original terms of the deal which were announced in late 2012, Renault-Nissan was to invest RUB23 billion (USD742 million) in acquiring its majority 67.13% stake in the holding company which goes under the banner of Alliance Rostec Auto BV. At the time Renault also pledged to invest about RUB11.3 billion in the JV, with the French OEM now owning a 50.1% stake in the JV company. Prior to the 2012 announcement Nissan did not directly own a stake in AvtoVAZ, but following the announcement of the new JV holding company the Japanese OEM pledged to invest RUB11.7 billion in the business which gave it a 17.03% stake in the holding company. With the deal now closed, Renault-Nissan can look forward to accelerating plans to introduce new models under these brands in the Russian market, while also helping AvtoVAZ to renew its ageing model line-up.
Outlook and implications
It is more than six years since Renault took its initial 25% stake in AvtoVAZ, so it will come as a relief to the company's management, after what has been at times a complex saga, that the deal has been closed and that Renault-Nissan can continue to roll out its wider strategy for the Russian market. in the intervening six years, AvtoVAZ has undergone some extremely tough times, notably the accelerated decline in sales in 2009 which resulted from its almost complete dependence on the Russian market and which was the catalyst for the Russian government's successful scrappage scheme. AvtoVAZ is having to make the painful transition from a company run under the command economy of the Communist era to a modern industrial business, and despite the fact that it is looking to shed 13,000 jobs this year under new CEO Bo Andersson (see Russia: 6 June 2014: Total AvtoVAZ job cuts to increase to 13,000), that process is only now at the early stages despite positive developments such as Renault helping to modernise the firm's main Togliatti plant and the formation of a new joint purchasing company to maximise synergies and economies of scale. As a result of the alliance IHS Automotive sees combined forecast production of Lada, Renault Nissan and Datsun models increasing in Russia by 57% to 1.2 million units between 2013 and 2023. There will be a multitude of new models for the Lada brand, while Nissan is already manufacturing the Renault B0-platform Almera model at AvtoVAZ's Togliatti plant. The company is also adding its new budget Datsun models to the production roster at Togliatti, including the new on-Do this year and the mi-DO next year. Nissan is also manufacturing existing versions of its model line-up at the AvtoVAZ-owned IzhAVTO plant, with the Sentra and Tiida slated for production at that location. Lada will renew its own model range over the next few years with the help of Renault-Nissan technology, with a significant emphasis on a new range of crossovers and SUVs to meet increasing demand for this vehicle type in the country (see Russia: 24 June 2014: AvtoVAZ responds to changing consumer preferences in Russian market with new SUVs and crossovers). While it will be a relief to all parties involved that the deal has been finalised, the enterprise still faces significant challenges. AvtoVAZ lost RUB7.9 billion last year (see Russia: 1 April 2014: AvtoVAZ's 2013 loss of RUB7.9 bil. shows extent of turnaround required) and with the Russian light-vehicle market forecast to contract by 8% this year to 2.59 million units this loss is likely to widen in 2014. There must also still be concerns over the impact on Russia's foreign relations will have on the alliance as a result of the ongoing tensions in Ukraine, although a more conciliatory approach has been adopted by the Kremlin in the last week.