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. Last Updated: 07/27/2016

State Managers Take Over AvtoVAZ

The new state-friendly management of AvtoVAZ began its work on Thursday by casting doubt on the future of the auto giant's joint venture with General Motors.

As expected, the government firmed its grip over the carmaker earlier in the day when a number of representatives of state-owned companies were elected to the AvtoVAZ board.

The company's newly appointed general director, Igor Yesipovsky, suggested at a news conference in Tolyatti that the board would review AvtoVAZ's venture with GM, which produces the Chevy Niva and Viva models.

"We'll talk about our cooperation with General Motors separately," Yesipovsky told reporters, citing the venture's profitability of "zero or slightly below that," Interfax reported.

Irina Shemyakina, a spokeswoman for GM-AvtoVAZ, denied that the venture was unprofitable, saying that shareholders had received "decent" dividends in the summer. She refused to provide further comment and said senior managers were on vacation. A security guard at GM Europe headquarters in Zurich said that nobody was available to comment because of the Christmas holiday.

By calling the joint venture into question, the new management is wasting no time in breaking with the past. The extraordinary shareholders' meeting to elect a new board was called after Vladimir Kadannikov, the long-serving AvtoVAZ board chairman, stepped down in October. Kadannikov also headed the board of the GM-AvtoVAZ venture, which started producing the four-wheel-drive Chevy Niva in 2002.

An auto analyst with a Moscow brokerage, who spoke on the condition of anonymity because of the sensitivity of the situation, said that GM-AvtoVAZ would in fact finish the year with zero profitability, down from 4 percent in 2004 and 10 percent in 2003.

"I believe the project is likely to be nixed early next year," the analyst said.

It is also possible that only the loss-making Chevy Viva -- the Russian version of the Opel Astra -- will be axed instead of the entire venture, the analyst said.

At Thursday's meeting, the deputy general director of state arms exporter Rosoboronexport, Vladimir Artyakov, replaced Kadannikov as AvtoVAZ chairman, Interfax reported. Yesipovsky, three representatives from state-run Vneshtorgbank and the head of the Federal Industry Agency, Boris Alyoshin, were also among the newly elected members of the 12-seat board.

Only three previous board members -- Anatoly Melnikov, head of the AvtoVAZ workers' council; Nikolai Karagin, chairman of the AvtoVAZ trade union; and Albert Gavrikov, a representative of minority shareholders -- kept their seats, the news agency reported.

The election puts an end to months of speculation about the fate of the ailing Lada-maker following Kadannikov's resignation. The market reacted with indifference, with AvtoVAZ's share price staying stable at 1,047 rubles ($36) per share on the MICEX just before closing.

Observers have been predicting that the state is moving in to bail out Russia's largest automaker -- as it has in other sectors it deems strategic.

A Rosoboronexport spokeswoman, speaking from Tolyatti, downplayed speculation about a creeping nationalization of AvtoVAZ.

"The state is just delegating more efficient managers for the plant," she said by telephone.

Last month, Kommersant business daily reported that Rosoboronexport was set to buy 60 percent of AvtoVAZ for $700 million, with financing from Vneshtorgbank.

Vasily Titov, a VTB senior vice president who was elected to the AvtoVAZ board, said the bank would cooperate closely with the carmaker, including on providing credit schemes for Ladas, Interfax reported.

Alyoshin confirmed earlier reports that his Federal Industry Agency had drawn up a multibillion-dollar plan to rescue the auto industry.

Alyoshin said the agency's plan foresaw $5 billion being pumped into the country's car industry until 2010, Interfax reported. The plan has already been presented to Prime Minister Mikhail Fradkov for consideration, he said. It will be up to the state to determine the beneficiaries of the program, Alyoshin said.

AvtoVAZ has effectively become Russia's only carmaker as other auto companies start assembling foreign makes. Earlier this year, IzhAvto, the country's second-largest carmaker, discontinued its Oda model to focus on putting together KIA cars. On Thursday, Severstal-Avto said it would stop production of its diminutive Oka car next July, Interfax reported.

Car experts were divided over what role the state should play in AvtoVAZ.

Natalya Volchkova, an economist with Center for Economic and Financial Research, said that sinking $5 billion into the Tolyatti-based maker would be a "waste of money."

"Carmaking is just not our niche," she said, adding that AvtoVAZ lacked the managers to turn around the plant. "It would be better to distribute that money among the workers so they wouldn't have to come to work for a year," she said. However, the maker could succeed if it produced armored vehicles or other military-purpose goods, something that Rosoboronexport had experience with, she said.

UFG has said that the choice of Rosoboronexport was "the least attractive" option, as the state arms dealer is a highly bureaucratic and closed entity with no experience in car production.

Vyacheslav Zhabin, an automotive analyst with BrokerCreditService, expressed doubt that the state would throw $5 billion at AvtoVAZ as it wasn't the only project in urgent need of government attention.

"Currently, this is a social project that the state will not abandon and will try to maintain at least a facade of improving the situation," he said.