Analyst Sees Hurdles in Renault-Nissan Takeover of AvtoVAZ

PARIS – Renault and its alliance-partner Nissan move closer this week to taking control of Russian auto maker AvtoVAZ with a memorandum of understanding signed here, but despite all the media hype at least industry one observer warns it is far from a done deal.

Renault, which already owns 25% of Russia’s largest car company, expects the non-binding agreement to become a definitive contract by the end of the year. That would allow the alliance partners to obtain majority control of Lada-maker AvtoVAZ by 2014.

However, “it should by no means be taken for granted that the deal will progress smoothly to its conclusion in 2014,” IHS Global analyst Tim Urquhart warns. “Behind the scenes, there is little doubt the relationship between Renault and AvtoVAZ has been fraught with management, financial and legal difficulties.”

Renault bought its stake for $1 billion in 2008, just before the global market crash. The original French management team was called back home, and Russian managers took over the delicate task of dealing with workers while the industry’s new-vehicle sales plunged about 50%.

Russia stepped in with financial help for AvtoVAZ while also pressuring Renault to invest more. But Renault at the time invested only technology.

Now, after four years of working together, AvtoVAZ launched its first vehicles in April based on the Renault Dacia B0 platform – the Lada Largus minivan and a light-utility van variant.

The vehicles will be built on a new assembly line finished earlier this year meant to produce 350,000 B0 platform cars annually for AvtoVAZ, Nissan and Renault. Russian Prime Minister Vladimir Putin visited the plant for Job One in April. The short-term goal is to build five new models on the new line in Togliatti.

The agreement calls for Renault to invest another $300 million and Nissan $450 million over the next few years, while Russian public stakeholder Rostekhnologii (Russian Technologies) will restructure the company's existing debt. The venture will buy the stake owned by Russian investment company Troika Dialog by 2014.

The plan is to set up a joint venture that will own 74.5% of AvtoVAZ, with Renault-Nissan holding a 67.13% share.

Carlos Ghosn, CEO of both Renault and Nissan, says in a statement the two auto makers  “will continue their technology transfer to AvtoVAZ plants, (while) our AvtoVAZ colleagues will contribute more and more to the alliance's multicultural management bench."

AvtoVAZ sold 578,387 Ladas in Russia last year. Renault and Nissan delivered another 300,603 units.