The New York Times article, “Russia Wants Renault to Fix Lada,” describes a rather complex situation in which the Russian government is unsuccessfully trying to influence the French carmaker, Renault, to help bail out Russia’s largest carmaker, Avtovaz.
I thought the article provided an excellent example of a few of the concepts presented in chapter 10 of our text.
Here’s a summary of Russia’s and Renault’s positions. Both parties hold a 25% stake in Avtovaz.
The Russian Government
Avtovaz has suffered during this recession and is currently partially shut down. Without support, Avtovaz “is not going to make it.” The poor position of the auto factory has led to industrial and social unrest as well as threats of employee strikes. Amid this difficulty, the Russian government has tried both a threat and a promise (of sorts) to pressure Renault into investing in a bailout. Russia has threatened to dilute Renault’s stake if it did not invest. Alternatively, Russia has stated that Renault is “welcome to increase [its] stake in Avtovaz. Russia’s conflicting statements show there may be little credibility in either.
Renault has offered to retool the Avtovaz factory at Russia’s expense and has also offered management and technical support, but Renault has stated it will contribute no cash for a rescue. Experts pronounce that Renault is losing interest in the Eastern European market. Just this week, Renault announced a new car to be sold in India in 2012. Meanwhile, Renault has faced problems of its own back in France and has accepted a large, restrictive loan from the French government. The loan’s restrictions force Renault to keep all of its French factories open. While a mere announcement of a new Indian car in 2012 might not convince Russia that Renault will not cough up the cash, the acceptance of a substantial, cumbersome loan probably will.
The two parties have plans to meet within the next week, but I have little doubt that Russia is going to be left with the financial burden of saving Avtovaz.