March 15, 2016 / 7:03 PM / a year ago

New boss of Russian carmaker Avtovaz enters a lion's den

6 Min Read

The logo of Russian automobile maker Avtovaz is seen on a Lada car, which is on sale at the 'AvtoGermes' dealership in Moscow, Russia, March 14, 2016.Maxim Shemetov

MOSCOW (Reuters) - Nicolas Maure, brought in to turn around Renault-Nissan's Russian carmaker Avtovaz, is entering a lion's den where his predecessor fell foul of diving sales and powerful vested interests among shareholders, suppliers and workers.

The 55-year-old Frenchman is likely to press on with cutting the workforce and weeding out shoddy component suppliers, albeit at a slower place than the last chief, while fending off those who want to keep the status quo.

Avtovaz, producer of Russia's best-selling Lada brand and the country's biggest automaker by sales, is deeply troubled.

Maure was named chief executive on Tuesday to replace Swedish national Bo Andersson, who fell victim to Russia's economic slump which hurt car sales, and came under fire from Avotvaz's Russian shareholders who criticized him for laying off workers.

Until now, Maure has been running Renault's REN.PA Romanian business Dacia, giving him experience of working in a former Communist bloc state and dealing with prickly unions. But the problems he will encounter at Avtovaz's Togliatti plant on the Volga river are on a different scale.

One manager has been shot dead since the collapse of communism in Russia - an incident linked to organized crime which at times has infected the auto industry - and in the past few years some senior staff at the plant have gone around Togliatti with bodyguards.

Maure's appointment was announced by Avtovaz's main shareholders, the Renault-Nissan alliance and Russian state-owned Rostec, confirming an earlier Reuters report.

"Avtovaz has modernised its line-up and manufacturing processes, and significantly improved product quality," said Carlos Ghosn, who heads the Franco-Japanese alliance and is Avtovaz chairman. "We remain bullish about the long-term future of the Russian market and Avtovaz as the leading domestic automaker."

Miniature Cars

Renault-Nissan owns a combined 67 percent of the holding company that controls Avtovaz while Rostec, a defense conglomerate, owns the remaining 33 percent.

Maure is a 16-year veteran of Renault who decorated his office in Romania with large numbers of miniature cars. In his job as president and CEO of Automobile Dacia SA, he handled tough wage negotiations, with unions threatening to strike.

Management raised the prospect that production could move to Renault's more competitive plant in the Moroccan city of Tangiers if wages in Romania rose too much. In the end, the two sides settled on a 5 percent wage rise and bonus for 2016.

Nevertheless, the Dacia business is growing. By contrast, Avtovaz has been hammered by the Russian economic crisis caused by low oil prices and Western sanctions.

Avtovaz reported a net loss of 73.85 billion roubles ($999.3 million) for 2015, almost triple the 2014 loss, and issued a plea for cash to shareholders. Renault wrote down the value of its investment in the firm by 70 percent.

Lada is also being challenged by South Korean rivals Kia and Hyundai which make cars in a similar price range and, as foreign brands, are preferred by some status-conscious Russians.

No Work in Togliatti

Andersson responded by slashing jobs. In 2014 and 2015, the company made 20,000 of its 65,000 employees redundant. That has badly hurt life in Togliatti, a city dominated by Avtovaz and its suppliers.

"All the employers have fired people, the streets are full of people, and there's no work in Togliatti," said Yevgeny, a 49-year-old procurement specialist who lost his job at Avtovaz and was queuing earlier this month to register at a state employment office.

The job cuts are a sensitive issue for the Kremlin, which is worried about social unrest stemming from the economic slump.

Rostec boss Sergei Chemezov, a former colleague of President Vladimir Putin, castigated the Avtovaz management in November. "They threw people out into the street," he was quoted as saying by TASS news agency. "This is probably a European practice; we believe you can't do that, you need to behave more flexibly."

Vladimir Bespalov, an auto industry analyst with VTB Capital, said Avtovaz under its new management would now steer clear of large-scale compulsory redundancies.

"Avtovaz will continue to reduce employee numbers, but it's unlikely they'll fire people," Bespalov said. "Probably they will leave in force the ban on hiring new staff."

Gun to My Head

Under Andersson, the firm made headway in cleaning up a supplier network once rife with corruption and inefficiency. He scrapped contracts with some long-standing local suppliers, causing them in turn to lay off workers.

Commenting on a dispute with suppliers in January, Andersson was quoted as saying by the RBC news agency: "I will not let them hold a gun to my head."

That stance led to a backlash from influential Russian interests, with government officials speaking out in defense of the homegrown suppliers.

A manager at a separate Russian automaker, who spoke on condition of anonymity, said one of the main reasons Andersson was removed was because he was uncompromising with Russian suppliers, replacing them with foreign contractors at the first sign of problems with the quality of their parts.

"An important task facing the new head of Avtovaz is to preserve the remaining Russian suppliers," said the manager.

Additional reporting by Luiza Ilie in BUCHAREST; Writing by Christian Lowe; editing by David Stamp

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