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. Last Updated: 07/27/2016

Renault Unveils $250M Car Factory

MTIn a bid for Russia's low-budget car market, Renault plans to assemble 60,000 Logan models annually in the former Moskvich plant in southern Moscow.
Renault opened a $250 million assembly plant in Moscow on Tuesday as the French automaker positioned itself to enter Russia's lucrative low-budget car market.

The first Logans, which Renault designed especially for developing economies, will go on sale by September, the company said. In the beginning, Renault plans to produce 60,000 Logans per year through its Russian subsidiary Avtoframos, located in the old Moskvich plant in southeast Moscow. In the medium term, the carmaker said, it is studying the feasibility of doubling capacity.

"From our side, it is not only a manifestation of trust toward the Russian car market but toward the country's economy as a whole," Renault CEO Louis Schweitzer told reporters.

Renault has set ambitious goals, considering that Hyundai, the most popular overseas brand in 2004, sold just over 50,000 vehicles. But overall foreign auto sales grew more than 80 percent last year, to 350,000 new cars, and total foreign sales for 2005 are expected to rise by another 40 percent to 500,000. Domestic production last year was just over 1 million.

Last year Renault occupied 4.6 percent of the foreign car market, selling some 16,000 vehicles, a 42 percent leap from the previous year. By 2008, Renault plans to sell 100,000 cars in Russia, of which 40,000 will be imported and 60,000 will be assembled in Moscow. The company said it aims to establish dealerships in all cities with more than 300,000 inhabitants.

With the Logan, which will sell for between $8,000 and $12,000, Renault said it was eyeing a market niche somewhere between domestically produced Ladas and lower-end foreign brands. Yet analysts said the Logan could expect stiff competition from other overseas carmakers.

Renault plans to manufacture and sell its new economy model in a number of developing economies, with the goal of achieving global annual sales of 4 million by 2010 -- with the Logan accounting for a quarter of that figure.

The car is already being made in Romania, and within the next three years, production of the Logan will begin in Morocco, Columbia, Iran and India, the company said.

Renault established its Russian unit, Avtoframos, which stands for Auto France Moscow, in 1998. Renault holds a 76 percent stake in the venture, while the Moscow government controls 24 percent. Before the opening Tuesday, the company assembled a small number of Symbols.

Renault has sunk $250 million -- the largest investment by a European carmaker in Russia -- into refurbishing the sprawling, derelict Moskvich plant in southeast Moscow. The debt-ridden plant had lain idle for years before City Hall found Renault, sweetening the deal with heavy discounts on land taxes, property leases and advertising.

Vladimir Filonov / MT

Renault's Logan, which will retail for between $8,000 and $12,000, is set to go on sale at dealerships by September.

The gleaming new plant is highly automated and will initially produce 12 cars per hour, the company said. Parts to a large extent will come from Renault's Dacia plant in Romania. But the company has already secured contracts with five domestic suppliers, including ZiL automaker and the Bor glass factory near Nizhny Novgorod, said Jean-Michel Jalinier, general director of Avtoframos.

Avtoframos plans to hire 1,000 workers this year, at a starting monthly salary of 11,000 rubles ($400), Arnaud de Kertonguy, Avtoframos' commercial director, told reporters. The number of employees is set to double by 2006.

Besides General Motors, which partnered with No. 1 Russian carmaker AvtoVAZ to make the Chevy Niva, Avtoframos is only the second joint-venture to start production of vehicles domestically.

Ford opened its own plant in St. Petersburg in 2002 under the condition that 50 percent of its parts would be domestically produced by 2007. Other foreign brands that are assembled in Russia include KIA, BMW and Hyundai.

Some observers said the Logan will not be without rivals. Traditional economy carmakers from Asia will compete for consumers, as will AvtoVAZ's new Kalina model, said Andrei Koterev, a spokesman for Severstal-Avto.

"It's a budget car and it shows in every detail," Koterev said. "All four handles are the same, the design and interior are very simple."

However, Alex Kantorovich, chief strategist with Aton, praised Renault for bypassing the prohibitive barriers Russia puts up against importers and "landing right in the market."

"With the price [of a Logan] not very different from that of a Lada, it will still be perceived as a Western car," he said.