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. Last Updated: 07/27/2016

AvtoVAZ Sees Record Loss as State Plans Aid

AvtoVAZ on Monday reported record losses of 19.4 billion rubles ($659 million) for the first six months as sales continued to slide in September and the government discussed plans for additional assistance for the company.

The dismal results came as the government approved a nine-month extension to increased import duties on cars, which all but closed the Russian market to used foreign autos. The initial hikes on used and new cars, signed in December to help domestic producers like AvtoVAZ, caused unrest in the Far East, where many drivers relied on imported Asian vehicles.

The Tolyatti-based company said earnings declined by 50.6 percent year on year. AvtoVAZ, which last month conceded to the government that it makes poor-quality cars, attributed the dismal results to a “decrease of Lada brand sales because of the world economic crisis and the general economic downturn in the country.”

Half-year sales were at 169,000 cars, down from 378,000 for the same period in 2008. The first-half loss is 10 times worse than a year earlier, when the carmaker had a net loss of 1.9 billion rubles. Last year, AvtoVAZ posted a profit of 1.48 million rubles ($50,000).

The carmaker’s September sales of 28,109 cars were a record low for the entire history of the plant, which opened at full capacity in 1974, according to Avtostat, a Tolyatti-based agency that tracks the industry.

Deputy Finance Minister Alexander Novak said Monday that the government was looking at two possible paths to bring AvtoVAZ to financial health, after securing a pledge from shareholder Renault to help with technology.

AvtoVAZ management is asking for state guarantees to refinance loans and subsidies on interest rates. The other possible solution is to convert the company’s debt to state banks Sberbank and VTB into additional shares, but Renault may be against such a measure, Novak said, Interfax reported.

The French carmaker owns a blocking 25 percent stake in AvtoVAZ, as do the state corporation Russian Technologies and brokerage Troika Dialog.

“The situation is likely to be clearer in a month,” Novak said. AvtoVAZ is seeking a state subsidy to cover 11.5 billion rubles of its social obligations related to potential layoffs, but “the sum is not covered by the budget.”

The government has provided roughly $1 billion in aid to AvtoVAZ this year, most of which was used to pay down debt.

In addition to the import tariffs, the government has introduced a range of measures to help the industry, including car-loan subsidies for some vehicles made in Russia and an increase in state orders.

But most dramatic has been the import tariff increase, which helped domestic carmakers boost their market share to 61 percent in the first six months, up from 43 percent a year earlier, the Industry and Trade Ministry said in a report in August.

The resulting decrease in imports, however, more than halved the customs duties that the government was collecting — from 96.2 billion rubles ($3.3 billion) in the first half of 2008 to 43 billion rubles for the first six months of this year, the ministry said.

Still, the ministry calculated that the effect from the protectionist measure was positive.

Andrei Belyaninov, head of the Federal Customs Service, said Monday that the service collected 2.31 trillion rubles in the first nine months of the year, 35 percent lower than the same figure for 2008. He predicted that the service would contribute 3.47 trillion rubles to the federal budget this year.