Avtovaz, Russias largest carmaker, will cut investment
in half and lay off 27,600 workers by mid 2010 under a survival
plan adopted by the board this week.
The threat to slash Avtovazs workforce highlights
Russias recovery strategy dilemmas about the scale
and direction of investment, and how to restructure industry
without provoking social protest analysts believe.
Avtovaz, whose main owners include Renault and the state
corporation Rostekhnologiya, employs more than 100,000 people
in Togliatti, on the Volga, a historic centre of car
production. On Tuesday its board reduced projected investment
in 2010-2014 by half, to 42 billion roubles, with a focus on
new Renault models.
The company has 37 billion roubles of debt outstanding, and
another 25 billion roubles of 10-year quasi-sovereign notes
guaranteed by Rostekhnologiya. A debt-for-equity deal under
which state-owned banks take stakes may help lessen the
But Natalia Orlova, chief economist at Alfa Bank in Moscow,
told Emerging Markets that the Russian car industrys
problems are rooted more in weak consumer demand, and
inefficiency, than in lack of financial resources.
The governments fiscal stimulus package made
financial resources available for industry, but many of these
have not been made use of, she pointed out. The budget
deficit in the first eight months of 2009 was only 4.7% of GDP,
against a projected level of 8% for the year.
The government is supporting investment initiatives
hesitantly, Orlova added. Moscow sees some
private-sector projects as inefficient, while corporations are
accused of using state funds to fill holes in their balance
sheets instead of investing.
And the real economy is far, far from recovery. In 2009,
industrial output will be down by 11% year-on-year, Orlova
estimates, and in 2010 GDP will fall by a further 1% and
industrial output by 3%. Growth will not even start again
until 2012, she warned. Until then it would remain around
0 or 1%.
There has to be investment, Orlova said.
The Russian boom was underpinned by consumption growth,
which was driven by increased salaries, which in turn were
driven by capital flows not by investment growth or
production growth. The crisis should provide a chance to
address these problems.
In the tug-of-war for financial resources between Avtovaz,
Rostekhnologiya and the state-owned banks, all sides remain
wary of another group of stakeholders who could upset any
applecart: the car workers.
Earlier warnings of job cuts, and short time imposed on
Avtovazs entire 100,000+ workforce, sparked angry
demonstrations in Togliatti. A hands off Avtovaz
rally on 6 August demanded a moratorium on job losses, more
transparent accounting and nationalisation of the factory.
Andrei Lyapin, the Interregional Union of Auto Workers
coordinator in Togliatti, said in a telephone interview:
The government told us to address our demands to
Rostekhnologiya. Thats no answer: this is a political
issue. There is a prospect of new employment in a special
economic zone being created in Togliatti, but that will be in
2012. What about the interim? There are already more than
18,000 unemployed in Togliatti, and only 5500 vacancies.