AvtoVAZ Sending Mixed Messages

MTAlyoshin addressing an investment forum last week. He said Friday that AvtoVAZ was "a little behind schedule."��
AvtoVAZ said in a statement late Friday that it was stopping its conveyors indefinitely, despite comments earlier in the day from the company's president that supply problems would not force a halt to production.

"The conveyor was stopped on Thursday for an indeterminate amount of time because of nondelivery of auto components," AvtoVAZ said in an e-mailed statement. Requests for clarification went unanswered.

The announcement appeared to directly contradict assurances made by AvtoVAZ president Boris Alyoshin, who told news agencies earlier Friday that production would continue as planned.

"We're a little behind schedule this week, but we will resume production on Monday," Alyoshin told Interfax. He said the company was in talks with suppliers to resolve the matter.

Calls to official and independent union representatives went unanswered Sunday evening.

AvtoVAZ, Russia's largest carmaker, restarted its plant on Feb. 2 after a monthlong extension of the winter break, and it announced plans to produce 32,000 cars in February, a drop of 31 percent year on year.

The company, which is one-quarter owned by French automaker Renault, began paying suppliers 70 percent of invoices in promissory notes in January, AvtoVAZ said in a statement last month, citing unfavorable economic conditions. Domestic sales fell by 6 percent in 2008 to 622,000 vehicles, and as many as 100,000 unsold cars piled up in storage late last year.

Although lower demand is a problem across the industry, AvtoVAZ is in a particularly difficult position because its flagship model, the Lada Classic, is no longer competitive, said Mikhail Lyamin, an automotive analyst with the Bank of Moscow.

"The situation on the market is such that nobody wants that scrap metal," he said, referring to the Lada. "It is highly questionable whether demand will return to that segment of the market, even with the imposed government measures," he said.

In January, the government raised tariffs on used, foreign-made cars, with certain duties being hiked as high as 80 percent. Rallies have been held in Tolyatti, the hometown of AvtoVAZ, in support of the increases, which were protested in several other cities around the country.

Government officials met with domestic automakers in December and offered to increase state purchases, create a special leasing company to boost sales and provide 233 billion rubles ($6.4 billion) in direct financial support, loans and leasing arrangements.

Although AvtoVAZ has amassed at least 18 billion rubles in short-term debt to creditors and suppliers, the government is likely to come to the rescue, Lyamin said.

"But the issue is not about rescuing the company, it's about making sure the situation in the region is stable."

AvtoVAZ is the main employer in Tolyatti, a city of just over 700,000 people in the Samara region. In January, the plant announced that it would lay off 400 employees.

The company's workers protested the layoffs on Friday in front of the entrance to the plant, Interfax reported.