Renault Signs $1Bln AvtoVAZ Deal

ReutersFrom left, Alyoshin, Ghosn and Chemezov celebrating the deal at Russian Technologies' office in Moscow on Friday.
French auto giant Renault completed a deal Friday that could see the company pay up to $1.17 billion for a 25 percent stake in the country's biggest carmaker, AvtoVAZ.

The companies cemented the deal, designed to reinvigorate the ailing Lada brand, at a signing ceremony in the Moscow headquarters of AvtoVAZ's parent company, the recently formed state corporation Russian Technologies.

The agreement will see Renault pay about $1 billion now and a deferred payment of up to $166 million in late 2010 depending on AvtoVAZ's earnings performance in 2008 and 2009, said Russian Technologies chief Sergei Chemezov, who also chairs the board at AvtoVAZ.

The deal will "preserve and protect the Lada brand," Chemezov said at the ceremony. "Our main goal is to have a quality, competitive automobile."

AvtoVAZ is looking to float as much as 25 percent of its shares in Moscow and London as early as this fall, Chemezov said.

AvtoVAZ is currently controlled by state arms trader Rosoboronexport, a subsidiary of Russian Technologies. Renault is formally buying the 25 percent stake from brokerage Troika Dialog, which will forward the proceeds to Russian Technologies.

"Russia is one of the most coveted markets for carmakers today, given the potential growth," Renault chief executive Carlos Ghosn said at the ceremony.

Over the past few years, the country's car market has increased spectacularly and is now poised to become the largest in Europe. Currently, Russian car ownership stands at 150 cars per 1,000 people -- one-quarter the figure in France.

While AvtoVAZ domestic sales grew by 6 percent last year, foreign carmakers operating assembly plants in the country are growing faster.

Renault plans to boost production dramatically at AvtoVAZ's mammoth Tolyatti plant to about 1.5 million cars per year by 2014. But Ghosn said the increased production would not mean increased competition for the sale of Renault models in Russia.

Under the strategic partnership agreement, Renault will get three seats on the AvtoVAZ board of directors, with four of the French firm's managers taking senior positions at the Tolyatti plant, including the post of chief operating officer.

When asked whether he feared for the safety of the managers following the murder of AvtoVAZ's head of procurement in Tolyatti last month, Ghosn said he had full confidence in local law enforcement agencies.

Chemezov said Renault had been chosen as AvtoVAZ's strategic partner, out of a potential field that included U.S. General Motors, Germany's Volkswagen, Italy's Fiat and Canadian car-parts manufacturer Magna, in part because of Renault's success in turning around Japanese carmaker Nissan.

"Renault did not swallow up Nissan but instead helped to develop the company's brand," Chemezov said.

AvtoVAZ president Boris Alyoshin, the former head of the Federal Industry Agency tapped last fall to lead the carmaker, said the first car to be jointly manufactured by Renault and AvtoVAZ would be based on the Renault Logan. Production would begin in 2009, Alyoshin said.

Alyoshin has said recently that the car should sell for the equivalent of $6,000 to $7,000.