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. Last Updated: 07/27/2016

AvtoVAZ WonТt Last Without State Help

AvtoVAZ on Thursday announced a loss of 24.7 billion rubles ($791 million) in 2008 and said it may not be able to survive without further state support.

Without continued government support in debt refinancing and investment, there is “significant doubt” that the company can stay viable, the company said in its 2008 financial report, echoing predictions that industry players have been making for months.

Current debt amounts to about 53 billion rubles, 90 percent of which is short-term debt due in less than a year, said Andrei Baginsky, vice president of finance.

Sales for the year stood at 192.1 billion rubles, up 4 percent from 187.5 billion rubles in 2007. But costs for the firm have skyrocketed, with administrative expenses shooting up by 23 percent and research spending climbing 65 percent.

AvtoVAZ blamed the market slump, increases in prices for components and transportation, and salary hikes for the bleak results.

Because of the growing cost of production, the profit margin was Уaround zeroФ by the end of the year, said Oleg Lobanov, recently appointed senior vice president of finance.

If the company can maintain a 30 percent market share, with total sales at 1.2 million cars, it expects losses of 10 billion rubles in 2009, Lobanov said.

УThese kind of losses are the highest in the company’s history,Ф said Sergei Tselikov, director of Avtostat, an agency in Tolyatti that tracks the auto industry.

УThe first shock of seeing those numbers is understanding that this is a synonym for bankruptcy,Ф he said. УNow it is clear that state help only covered the losses for last year.Ф

The company is following an anti-crisis plan, which the board of directors agreed on at the end of May, that aims to stimulate sales and cut logistical, transportation and administrative costs, Lobanov said, adding that the details of the plan were not made public.

Without the 25 billion rubles the company received as part of a state-sponsored bailout, the company would be in a Уrather pitifulФ position by the end of June, Lobanov said. УOur priority is to receive financing for our investment program. We will continue to ask the government for the same type of support,Ф he said.

Investment in new lines of cars may be the only way for the automaker to stay viable.

It is imperative for AvtoVAZ to develop new models before the end of the crisis, said Mikhail Lyamin, an auto analyst at the Bank of Moscow. УTheir business depends on delivering a new line of models,Ф he said, since demand for the current line of Ladas will thin out soon.

But another round of government aid may not be so easy to secure — especially since the state has had its hands full with another major auto project.

State-owned Sberbank and GAZ Group joined Canadian parts manufacturer Manga International in its bid for German automaker Opel. The government has been a public backer of the bid.

The auto industry is waiting for the government to indicate its strategy for the industry, because Уsupporting two big projects at the same time would be unwieldy,Ф Lyamin said.

AvtoVAZТs losses are leading to speculation that the withdrawals of key Renault executives from the companyТs management were intended to distance the French auto giant from the decision-making in the failing firm, Tselikov said.

At AvtoVAZТs shareholderТs meeting last week, shareholders removed Yann Vincent from his post as chief executive officer. Vincent is a French national from partner Renault, which holds a 25 percent stake in the company.

n Also Thursday, another troubled automaker, GAZ Group, announced that a total of 5,800 jobs would be cut at the companyТs plant.