Russia’s AvtoVAZ Plans $3 Billion Investment

Russian flagship automaker AvtoVAZ plans to invest up to RR120 billion ($3 billion) during the next three years in its own operations and its joint venture with General Motors, President Bo Andersson is quoted as saying.

The majority of funding reportedly will be used to modernize AvtoVAZ production and renew its model range.

The automaker has its eye on increasing local content as much as possible over the next several years, Andersson says. Localization of Lada cars already has reached 81%, he adds, while Renault and Nissan vehicles produced at AvtoVAZ are at about 51%.

The investment plan is centered on the Lada Vesta, a concept sedan designed by Steve Mattin, a British automobile designer of Mercedes ML-Class and GL-Class vehicles, which will go into production in September with up to 75% local content.

AvtoVAZ believes the investment will allow it to increase its share in the Russian market significantly. Lada controls 15.7% of the market overall, while in the entry-level segment (priced up to RR600,000 [$15,000]), its share is more than 37%.

Andersson reportedly is targeting production of up to 1 million cars annually during the next several years. At the same time, the automaker expects to strengthen cooperation with GM under the existing GM-AvtoVAZ JV that specializes in the production of Chevrolet Niva CUVs.

As part of these plans, the partners will continue to work on the design of the second-generation Niva, despite the cost of the project having skyrocketed 50% in recent months, from the initially planned $200 million to $300 million.

The partners are conducting talks with government officials in the Samara region, where production of the new model will be launched. They also are negotiating with some leading Russian banks over funding for the project. The current Niva is expected to go out of production by the end of 2015.

In the year’s first quarter, production at GM-AvtoVAZ  totaled 8,847 vehicles, down 28% from year-ago. First-quarter sales of the Niva locally declined 36.4% to 6,706 units.

GM-AvtoVAZ believes the Russian auto market, reeling as a result of Western sanctions, will begin to recover in the second half of the year.

However other multinational automakers and suppliers here are less optimistic and continue to study whether to reduce capacity or even leave the market completely.

U.S.-based Johnson Controls, one of the U.S. largest producers of auto parts, recently announced plans to close its St. Petersburg plant in October, resulting in the loss of more than 160 jobs. That move will impact Ford’s St. Petersburg operation, which has been one of the largest customers of the JCI plant.

GM’s planned pullout of its St. Petersburg assembly plant next month, plus reductions in output at other global automakers here, will slash overall vehicle production in the region this year.