AvtoVAZ new anti-crisis measure: bankruptcy

AvtoVAZ's new management announced an anti-crisis program - the company is preparing for bankruptcy and admits that layoffs will be necessary.

MOSCOW. (RIA Novosti economic commentator Vlad Grinkevich) - AvtoVAZ's new management announced an anti-crisis program - the company is preparing for bankruptcy and admits that layoffs will be necessary.

Nevertheless, the automaker's vice president Oleg Lobanov said that bankruptcy is only a legal procedure and does not mean a halt in production. He said laid-off workers could be rehired after manufacturing facilities are upgraded.

Current conditions at AvtoVAZ leave much to be desired. Sales revenue fell from 800,000 cars in 2008 to a forecasted 390,000 in 2009. The automaker's net loss in the first half of 2009 was 19.6 billion rubles, i.e. almost 10 times higher year over year.

But AvtoVAZ's main obstacle is its multibillion-ruble debt. As of October 1, 2009, the company's debt stood at 62 billion rubles and by the end of the year it will reach 75.2 billion rubles. Given the current production figures, the company is unable to service such debt.

AvtoVAZ management wants to restructure the company's debt and has offered several scenarios to this effect. The company's management would prefer the option to issue 50 billion rubles worth of convertible bonds.

"A bond issue would allow us to refinance the debt in the shortest possible time, stop paying interest and get the necessary funds to solve our liquidity problems," explains Lobanov.

But it seems that the convertible bond option does not quite satisfy

AvtoVAZ's main creditors - Sberbank and Vnesheconombank. Sberbank president German Gref said that the bank was "not considering converting AvtoVAZ's debt into shares." And weeks of negotiations with Vnesheconombank have produced no positive results either.

If the convertible bonds option doesn't fly, the automaker is ready to negotiate debt restructuring directly with creditors; and if the company is unable to launch a procedure to "protect itself from creditors," it will simply declare bankruptcy.

The government has the last word; and if government officials approve any restructuring option, then the management of Sberbank and Vnesheconombank will have to yield to such a decision. The final verdict will come on November 10, when a government commission led by Igor Shuvalov will discuss AvtoVAZ's anti-crisis plan.

In announcing the company's anti-crisis strategy, the plant's vice president Grigory Khvorostyanov said that already next year AvtoVAZ plans to increase production to 445,000, which would allow the company to break even. It also plans to upgrade the assembly line and to launch the production of five new models in order to reach an annual production capacity of 840,000 cars by 2014. The company did not disclose the amount of capital investment in the upgrade, but experts say that it will be a minimum of 240 billion rubles.

AvtoVAZ is unable to make these changes on its own, and is counting on aid from the government and the Renault-Nissan alliance, which has already pledged to support AvtoVAZ with technology that will enable it to expand its range of new models considerably.

In particular, AvtoVAZ plans to consolidate production of its "classics" and the Samara brand, and it will use the freed-up production capacity to launch the assembly of cars under the Renault, Priora and Kalina brands. To eliminate internal competition between the Priora and the Kalina, the price of the latter would be lowered to 250,000 rubles and the Priora would remain at its present price point. It would be replaced by 2014 with a new model based on the B0 platform, which is the basis for the Renault Logan economy car.

But these plans are for the future, and AvtoVAZ needs to eliminate its excess workforce now. AvtoVAZ president Igor Komarov said that the company's redundant personnel numbers 21,700, of whom approximately 7,400 are of working age and around 5,260 of whom are of pre-retirement age, and there are slightly more than 9,000 retirees.

The company currently employs approximately 100,000 people. As of December 1, 2009, the number of employees will be slashed to 90,000, "including the retirees who will be dismissed at that time." The target personnel capacity, given the production volume for 2009-2010, is 74,400. However, AvtoVAZ management has promised that after the upgraded assembly line is launched, 7,400 working-age employees will be rehired and will in the meantime work on other AvtoVAZ projects.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.