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. Last Updated: 07/27/2016

AvtoVAZ Developing New Budget Car

AvtoVAZ is developing a new budget car to appeal to buyers of its boxy 30-year-old Zhiguli series, the carmaker said Wednesday.

Details about the new economy car are few, but it is expected to be based on the Lada Kalina and priced at about 180,000 rubles ($4,950), making it the least-expensive new car available on the Russian market if the Zhiguli series is phased out.

The Kalina, a B-segment low-cost car launched in 2005, currently sells for a basic price of 250,000 rubles, so slashing the price to 180,000 rubles will require AvtoVAZ to strip it of options like power windows, interior materials, soundproofing and power steering, said Dmitry Agafonov, an automobile researcher with Autostat, which tracks the car industry.

The new car's closest competitor would be the Daewoo Matiz, which is priced at 204,000 rubles, so demand is likely to be high if AvtoVAZ delivers on price.

"It will be as basic as the classic models but developed 30 years later," Agafonov said by telephone from Tolyatti, where AvtoVAZ has its headquarters.

A switch from the Zhiguli to Kalina series would provide an indication of AvtoVAZ's long-term strategy to secure market share at a time when the Zhiguli series is falling behind rising standards for fuel and safety.

The Zhiguli family of cars is based on Italy's Fiat 124, which was named Car of the Year in 1967. Its two most popular models — the Lada 2105, dubbed "Pyatyorka," and the Lada 2107, or "Semyorka" — have been rolling off AvtoVAZ's assembly line since 1980 and 1982, respectively.

The two models remain the best-selling cars for both AvtoVAZ and Russia, with combined sales passing 185,000 units last year, according to company figures. Sales far exceeded the best-selling foreign model last year — Ford Focus, which sold 93,000 cars — but fell slightly short of the 188,000 units sold in 2007.

Car owners ridicule the outdated, boxy look and lack of safety of the Zhiguli series. The Lada 2107 infamously received zero points in a EuroNCAP frontal crash test. But its sticker price of less than 166,000 rubles leaves all competition behind.

An AvtoVAZ official denied Wednesday that the carmaker planned to phase out the Zhiguli series in the near future, but new legislation is threatening to push the models out of the market.

"The 'Pyatyorka' and 'Semyorka' will no longer meet qualifications for safety and exhaust, so the time will come soon to replace them, and the choice is limited," Agafonov said.

The choice of Kalina makes sense because it is AvtoVAZ's newest model, he said.

Older Russian models are notorious for their polluting engines, and another popular cheap car, the Oka, ceased production last year because it was impossible to upgrade it to meet new Euro-3 requirements. Zhiguli models were able to modernize, but the changes drove up their price by about 2 percent in January 2008. AvtoVAZ has raised car prices three more times since then.

AvtoVAZ chief Boris Alyoshin and other Russian car executives lobbied the government last year to push back the Euro-3 standards or make Russian companies exempt from them, but the Federal Anti-Monopoly Service has turned down the requests.

The government has set January 2010 as the date when Euro-4 standards go into effect.

The Kalina currently can be equipped with a Euro-4 engine.

AvtoVAZ has previously floated the idea of a new inexpensive "people's car," and Alyoshin said last year that the car should cost about 180,000 rubles.

AvtoVAZ's development of a new model comes as it faces a shortage of cash to pay suppliers and creditors because of slow car sales amid the economic crisis. The carmaker has appealed to the government for state loan guarantees worth 10 billion rubles ($276 million), Alyoshin said in an interview published Wednesday in Vedomosti.

The process of introducing the new economy car and phasing out the Zhiguli series will probably only start next year, said Mikhail Pak, an automobile analyst with Metropol.

"They are likely to introduce the new model gradually, and it will take at least a year to phase out the classic models," he said.