French carmaker Renault on Friday signed a billion-dollar deal to buy a stake in Lada-maker Avtovaz, Russia's biggest auto producer, in a push into the country's booming car market.
Renault chief executive Carlos Ghosn signed off on the landmark deal at a ceremony in Moscow that ended a years-long race by foreign investors to take a stake in the icon of the Soviet-era car industry.
Renault will receive a 25 percent plus-one-share stake in the carmaker for an initial payment of one billion dollars (657 million euros), Ghosn told reporters at the ceremony.
An additional payment of 166 million dollars (109 million euros) by 2010 will depend on the success of the tie-up, said Sergei Chemezov, the head of Russia's state-owned Rostekhnologi, which owns a major stake in Avtovaz.
“Russia is one of the most coveted markets for car manufacturers today given its high potential of growth and profitability,” Ghosn said.
In buying into Avtovaz, Renault is taking a major step into a market it estimates will reach 2.5 million units in 2007, before growing to 3.5 to 4.0 million units per year by 2015.
Under the deal, Renault will help expand annual output at Avtovaz's southern Russia plant to 1.5 million vehicles by 2014, Rostekhnologi said in a statement. The plant currently produces around 700,000 vehicles each year.
The two companies will “preserve and further improve the Lada brand” with the aim of producing their first joint Lada car by the end of 2009, the statement said.
“Lada is a Russian brand, part of Russia's culture and will remain so,” Ghosn said, addressing Russian fears that the deal might mark the beginning of the end of the name, much maligned for its still decades-old designs.
As well as promising to share its technology, Renault said it would preserve the autonomy of the Avtovaz management team, although several Renault executives, including Ghosn himself, will join the board of directors. Renault executive Yann Vincent will become Avtovaz Chief Operating Officer.
Once the new operations is consolidated into Renault's accounts, Russia will become Renault's single biggest market in terms of sales, the statement said.
Renault sold 2.49 million vehicles in 2007.
While Avtovaz remains the single largest carmaker in Russia, it is rapidly losing market share to foreign producers. In 2006, Avtovaz accounted for 32 percent of the car market in Russia.
As well as Renault, Russian media reported that US giant General Motors, Italy's Fiat and Canadian manufacturer Magna were also interested in taking a stake in Avtovaz.
In justifying Avtovaz's choice, Chemezov said the French group “had not swallowed” Japanese carmaker Nissan after its tie-up.
In recent years, rising incomes for many Russians as well as the appearance of car purchase loans have encouraged a spending spree on foreign branded cars as Russians leave behind their Soviet-era models.
Renault has been producing its Logan model at a factory in Moscow since April 2005 while its partner Nissan is due to open a factory next year.
Fellow French car producer Peugeot Citroen in January signed a deal to build a 300 million euro car plant southwest of Moscow.
Other foreign carmakers with Russian production facilities include Ford, Volkswagen and General Motors, whose own joint venture with Avtovaz has disappointed many analysts.
