Renault buys into Russia's car boom with stake in Lada maker

Carlos Ghosn, Renault chief executive, has set his sights on dominating the booming Russian car market after agreeing to buy a quarter of Avtovaz, makers of the Lada, which used to rank as one of the world's worst auto brands

Carlos Ghosn, Renault chief executive, has set his sights on dominating the booming Russian car market after agreeing to buy a quarter of Avtovaz, makers of the Lada, which used to rank as one of the world's worst auto brands.

Ghosn, who is also chief executive of Nissan, said at the weekend Renault would significantly improve the ailing Lada brand within a market expected to become the largest in Europe by 2015, overtaking Germany with up to 4m vehicles sold annually. Car sales in Russia are expected to grow by more than one-fifth this year and increase at a similar pace in 2008, he said.

The French group fought off competition from General Motors, Fiat, Volkswagen and Canada's Magna International to acquire its 25% stake in Avtovaz in a deal due to be completed early next year.

It refused to disclose the price it is paying but Thierry Moulonguet, chief financial officer, said it had agreed a "reasonable multiple" over earnings for its holding in a company valued at $5.7bn. Sergei Chemezov, head of the state-controlled arms manufacturer Russian Technologies, Avtovaz's owner, said it was "fair, close to the market price".

The deal will give Renault and Nissan access to close to 40% of the Russian market that has already attracted GM, Ford, Toyota, VW and other western manufacturers. Russian car sales are expected to reach 2.5m this year.

Avtovaz, which also makes the 4x4 Niva, will sell an estimated 700,000 cars in Russia this year, giving it a 30% market share, well down on the 52% it held at the beginning of the decade as foreign owners increase their presence. Renault has a new plant in Moscow and its partner Nissan is building a facility in St Petersburg.

Ghosn and Chemezov said the aim was to boost output to 1.5m cars a year, including at Togliatti, the main Avtovaz plant 620 miles from Moscow. It was there that Fiat handed over a licence to build the 124 saloon in the early 1960s, giving birth to the Lada brand, which will now benefit from Renault engines and gear-boxes. The Russian group, which was privatised in 1993, employs 105,000 and has a joint venture with GM to produce Nivas and Vivas. Last year its net profit was €70m (£50m) compared with Renault's €2.9bn.

Chemezov, a close confidant of Russia's President Vladimir Putin, said the steel tycoons Alexei Mordashov and Alexei Usmanov would buy Avtovaz stakes while Renault's holding would remain fixed at 25%.

Renault, together with Nissan, claims to be the fourth-largest car group globally, with 6.3m sales forecast for 2007. Ghosn, who has taken the company to India, Morocco and China, is expected to set a new sales target early next year.


David Gow

The GuardianTramp

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