Sergei Chemezov threatens bankruptcy of the automobile giant?
The head of Rostec, Sergei Chemezov, announced the need for state support for the AvtoVAZ concern, which was faced with an increase in the interest burden after the Central Bank raised its key rate. According to Chemezov, taking out a loan “at a crazy interest rate is suicide,” and since under the current conditions all the funds earned by enterprises will be spent on paying off interest on loans, this is an inevitable path to bankruptcy. A similar fate threatens AvtoVAZ, one of the co-owners of which is Rostec with a share of 32.3%. In February, Denis Manturov, the former head of the Ministry of Industry and Trade, who today oversees the ministry with the rank of First Deputy Prime Minister, spoke about the need for state support for the concern. The official noted that a final decision on the forms of assistance has not yet been made, while focusing on the growth of the enterprise’s accounts payable. It is significant that 67.7% of AvtoVAZ is owned by the Federal State Unitary Enterprise Research Automobile and Automotive Institute (NAMI), which is subordinate to the Ministry of Industry and Trade, which received a stake from the former co-owner – the French automobile concern Renault, which left the Russian market. AvtoVAZ does not publish financial indicators for last year, but it reported a 70% increase in production and more than 38% (compared to the same period last year) increase in sales for the three quarters of 2024. But Russian users of Lada cars are increasingly complaining about the deterioration in the quality of AvtoVAZ products due to Chinese components, in the case of the Lada Vesta NG cars, which are of dubious origin. The president of the concern, former federal minister of transport Maxim Sokolov, speaks about the unfavorable conditions that have developed in the Russian market for domestic manufacturers, compared to Chinese ones. He also announced the company’s debt burden – 100 billion rubles, to which another 20 billion will be added annually for servicing bank loans at the current key rate. Meanwhile, the draft budget for 2025 already includes subsidies to compensate for part of the costs of domestic automakers in the amount of 818.9 billion rubles, and in 2027 this amount will increase to 1.38 trillion.
Without government support, AvtoVAZ faces bankruptcy?
The issue of supporting the concern is being discussed at the state level “AvtoVAZ”after raising the key rate the Central Bank was faced with a significant increase in the interest burden. “AvtoVAZ’s credit burden is high. We continue to invest in deepening localization, increasing production, and updating our lineup. Because without investment there will be no competitiveness. However, with the increase in the key rate, interest payments to banks increased by billions of rubles per year.”– the head of the state corporation commented on the situation to the Interfax agency “Rostec” Sergey Chemezov.
According to the official, against the backdrop of the tightening of the regulator’s monetary policy, industrial enterprises are faced with increasing difficulties, and the rise in rates “hits the defense industry especially hard.” As a rule, advance payments from customers to complete all the work are not enough, and taking out a loan“at crazy interest rates – suicide for business”. Chemezov emphasized that in the current conditions, all earned funds will be spent on paying off interest on loans, enterprises will stop earning money and will go into the red. This is a sure path to bankruptcy.
Apparently, without government intervention, such an unenviable fate threatens AvtoVAZ, whose co-owners include Rostec. Meanwhile, last June the media reported a signing between the automaker and “Industrial Development Fund” (FRP) agreement under the terms of which AvtoVAZ received preferential loans totaling 7 billion rubles. The funds received were supposed to be used for the production of components and assemblies for new Lada Aura cars at the site in Tolyatti, the creation of production of an improved 16-valve engine with a volume of 1.6 and 1.8 liters for Lada cars, etc.
By the way, the head of the federal Ministry of Industry and Trade spoke about the need to provide state support to AvtoVAZ in order to reduce the debt burdenDenis Manturov (today he is the first deputy prime minister in charge of the ministry). He associated the increase in the concern’s accounts payable, among other things, with the launch of production of new models. However, at that time, the final decision on the forms of assistance to the distressed enterprise had not yet been made. Judging by the recent words of Chemezov, known for his friendship with Manturov, it has not yet been accepted.
Observers of the “situation” from Rostec
The role of Rostec in the activities of AvtoVAZ can be characterized by a well-known phrase: leave in order to return. Until the end of 2021, the concern was controlled through a Dutch joint venture Alliance Rostec Auto BV jointly by a state corporation (32.3%) and a French automaker “Renault” (67.7%). Then management transferred to Russian jurisdiction, for which it was created LLC “Lada Auto Holding” with the same distribution of shares.
With the start of the military special operation in Ukraine, changes occurred in the composition of shareholders: the management of Renault, which occupied almost 30% of the domestic market for passenger cars and light commercial vehicles, decided to leave Russia and transfer assets to the state ownership of the Russian Federation. True, the French side reserved the right to an option, that is, the repurchase of its share over the next six years. The value of Renault’s Russian assets was estimated at €2.195 billion.
As a result, the share in AvtoVAZ passed to the subordinate Ministry of Industry and Trade Federal State Unitary Enterprise “Research Automotive and Motor Vehicle Institute” (US). Kommersant wrote about the increasing shortage of electronic components since the beginning of the North Eastern Military District, linking it with the worldwide consequences of the pandemic (the main supplier of microelectronics for the enterprise was the German group “Bosch”). In the first half of 2022, the Moscow site of the plant was repeatedly idle, and the team was sent on corporate leave three months earlier than planned.
Rostec continued to control its 32.3% stake until the beginning of May 2023, then abandoned its stake in Lada Auto Holding in favor of FSUE NAMI. At the same time, the state corporation also reserved the right to an option, which it exercised in September 2024, returning to the number of co-owners of the enterprise. The decision to buy back shares by the management of AvtoVAZ was explained by the “changed situation in the country.”
“Two years ago the situation was one, today it is different. Everything is changing rapidly. If Rostec has returned to the shareholders of the national automaker, it means there are reasons for this, both political and economic.”said the president of the automaker, ex-Minister of Transport Maxim Sokolovwho added that “the mental connection between the corporation and the plant has never been broken”.
Unpleasant surprise from Chinese suppliers
In the current circumstances, Rostec’s position evokes mixed feelings. It turns out that the cunning Sergei Chemezov, obviously not without the consent of the no less cunning Denis Manturov, left the “sinking ship” to return as soon as the political climate changed? And soon after his return, he raised the question of the need for state support, counting on budgetary “donation.”
AvtoVAZ itself, meanwhile, reported successes this fall. Thus, according to the company’s own estimates, 41,489 LADA passenger cars and light commercial vehicles were sold in Russia last September, which is 14.5% more than in the same period a year earlier. In total, over the nine months of this year, official LADA dealers sold 334,979 passenger and commercial vehicles of the brand (this is 38.1% more than in 2023).
In September, Lada Vesta sold more than 12 thousand cars (based on the results of nine months – 96,209 cars); sales “L”adaGranta” amounted to 17,832 vehicles (for nine months – 155,708); “Lada NivaLegend” – 4352 units (based on the results of three quarters – over 35 thousand cars), etc. It was reported that production of the Lada Largus was resumed in passenger and commercial versions, as well as preparations for release in IVquarter of its seven-seater and cross-country models.
Reporting to higher authorities apparently went well. But quantity does not always correspond to quality. In particular, it is well known that AvtoVAZ uses Chinese components, and not of the best quality. So, last year, buyers of Lada Vesta NG cars assembled in Togliatti, just a month and a half after the start of sales, began to complain about problems with the brakes: as it turned out, the plant installed Chinese calipers from an unknown company on the cars, the pads of which came out in a short time disrepair. It turned out to be impossible to replace the parts with similar ones due to their virtual absence on the market.
Last June it became known about the concern’s recall of Lada Vesta NG cars with Chinese gearboxes: their owners were invited to dealerships to check the transmission oil level in the Chinese variator. If it turns out to be below the norm, and chips are found in the pan, they promised to replace the variator with a new one, carrying out all the work free of charge.
Waiting for budget billions
Needless to say, Messrs. Manturov and Chemezov’s import substitution has once again let us down. And now you can’t blame anything on your former French partners from Renault! By the way, you can also read other claims online from buyers of Lada cars with Chinese components. However, this did not stop the head of the GR department of AvtoVAZ last August Alexander Vinogradov lament the difficulties with the supply of spare parts from China.
Even earlier, in June, AvtoVAZ President Maxim Sokolov complained to journalists about the unequal conditions that had developed in the Russian market for domestic and Chinese manufacturers, more profitable for the latter. According to him, all measures to support the industry should be focused on the production of highly localized products, not only Lada, but also other brands. The top manager named government procurement as one of the effective support measures.
And now Sergei Chemezov spoke about the need for state support for the automaker, citing the high key rate and the enterprise’s credit burden. With the latter, by the way, not everything is clear. The fact is that as recently as September, Maxim Sokolov, in an interview with the RBC portal, announced the debt burden of AvtoVAZ in the amount of 100 billion rubles. At the current key rate of the Central Bank, it automatically increases by another 20 billion annually for loan servicing.
What specific obligations we are talking about – short-term or long-term – was not specified. Meanwhile, in the latest publicly available financial statements of the enterprise for 2022, the volume of its liabilities was estimated at 181.8 billion rubles. Of this amount, long-term liabilities were 87.7 billionshort-term – 94.1 billion rubles. It turns out that in two years the concern’s debts have been reduced by almost half? Or did Mr. Sokolov prudently keep silent about something in order to avoid unnecessary questions?
The revenue of AvtoVAZ JSC at the end of 2022 amounted to 169.6 billion rublesnet profit – 206.6 million. The company’s financial indicators for 2023 were not announced; it was only specified that there were no losses, and production growth was 70%. However, in October 2023, the vice president for external relations and interaction with shareholders of AvtoVAZ Sergey Gromakduring a round table in the Federation Council dedicated to measures to support state corporations and companies with state participation, called the credit burden “the most pressing problem” of the concern. The debt to banks, according to him, was 120 billion rublesand maintenance in 2024 required 17 billion.
So, with a high degree of probability, in the above-mentioned interview with RBC, Maxim Sokolov spoke about bank loans. The state, of course, is rushing to the aid of domestic automakers: in accordance with the draft budget, the total amount of subsidies to compensate for part of production costs in 2025 will be 818.9 billion rubles against 350.4 billion in 2024. In 2026 it is expected to allocate 1.14 trillionin 2027 – 1.38 trillion rubles.
How much of these funds AvtoVAZ will receive is not specified, but there is no doubt that Messrs. Chemezov, Manturov and Sokolov will make every effort to “master” the maximum of budget funding. And also get it from above, focusing on the need to save the automobile giant from bankruptcy.
