Crisis threatens Russian auto legend

August 11, 2009 05:58:07 PM

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It's impossible for residents of this Soviet-era city on the banks of the Volga river to imagine a life without Avtovaz. The carmaker's sprawling plant dominates the city.

Its factory, designed in 1970 by Italian car giant Fiat, stretches over 600 acres and its blue office tower looms 24 stories over the flat industrial city that is a maze of parts suppliers almost all dependent on the carmaking behemoth.

But on recent days the complex has yawned empty of the usual battalions of workers running its vast productions machines.

With warehouses full of unsold vehicles, Avtovaz has run its assembly line only haltingly since the onset of the financial crisis dealt another blow to sales, already slumping amid increasing competition from foreign imports.

"Close Avtovaz? That's impossible! It would be too hard a blow for this city," grumbled one old factory hand, Yury Boyarsk, 63.

But Boyarsk is off work and on reduced pay this week along with thousands more in this city about 1,000 kilometres (625 miles) south-east from Moscow where one out of seven of the 700,000 residents are employed by Avtovaz.

On Monday, Avtovaz shut its factory doors in the third month-long production stoppage since November.

Experts estimate the mammoth factory and its suppliers account for about two million of the country's jobs. But with sales plunging 45 percent in 2009, the factory doors have remained mostly shut.

In July, Avtovaz reported net losses of 24.7 billion rubles (563 million euros, 799 million dollars).

According to figures from the Association of European Businesses doing business in Russia, cited by Russian news agencies Monday, sales there of cars and light trucks collapsed by 58 percent to 115,483 units in July compared to the equivalent period in 2008.

The Russian government is backing a no-layoffs policy at Avtovaz, whose trademark boxy Lada model was the epitome of the people's car in the former Soviet bloc.

In a deal personally backed by Prime Minister Vladimir Putin, France's Renault was last year goaded into paying 1.7 billion dollars for a quarter of Avtovaz, angling for a foothold in what then promised to become the world's fastest growing market.

Moscow earlier this year coughed up 25 billion rubles to keep Avtovaz afloat.

This policy underscores deeper Kremlin worries that social unrest could explode if Russia's Soviet-era manufacturing base collapses, leaving thousands jobless.

Already Tolyatti, one of Russia's most loyal factory towns, has seen rumbles of discontent.

Hundreds of workers at Avtovaz protested this week demanding that the giant firm be nationalised and jobs guaranteed.

In January, riot police were called in to disperse angry pickets outside joint venture General Motors' plant after it laid off 400 people.

Following the demonstrations this week, the Samara region Industry Minister Vladislav Kapustin defended the management’s policies, saying they protected jobs for when demand would soon pick up again.

"The management team, which has faced criticism today, has so far been solving the biggest problem of keeping jobs," he said.

However, Sergei Dyachkov, who worked 25 years as a sociologist at Avtovaz, offered a singularly bleak perspective.

With an ineffective management and ageing equipment, Avtovaz faces only two long-term choices: progressive job cuts or bankruptcy, he said.

When the Tolyatti plant is scheduled to re-start production in September, workers will see their salaries reduced and their shifts cut to 20-hour weeks in measures Avtovaz management says are necessary to avoid mass layoffs.

"Salaries will be cut in half to an average of 6,000 rubles," mourned Pyotr Zolotaryov, an independent trade union leader.

"Once you've paid your rent with that, there's n