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The Director of “AVTOVAZ” is the most difficult position in the world automotive industry

Директор «АвтоВАЗа» — самая трудная должность в мировом автопромеDuring the launch of domestic sales of the new crossover Lada Xray in the showroom “Lada-Center South-West”

The dismissal of the Swedish Director of “AVTOVAZ” talks about the big problems of the enterprise with suppliers and production reforming

Six months ago the Director of “AVTOVAZ” Bo Andersson has brought to the Kremlin-organized conference by none other than the Russian President himself. Vladimir Putin got behind the wheel of “Lada Vesta”, the new model of “AVTOVAZ”. So they came up a mountain serpentine to the forum “Valdai club” held near Sochi.

The day before Andersson told scientists and journalists, as he reforms the AVTOVAZ brand Lada. A former top Manager at General Motors recalled how in his first day of work, the company he was shown several colorful computer presentations, but he demanded to show him the factory toilets. He says that it is a reliable indicator of the quality of enterprise management.

The subtext of the invitation of the Swedish Manager to speak at the forum seemed obvious. Despite diplomatic isolation and economic problems in Russia, caused by sanctions over Ukraine and falling oil prices, reform of the Russian business continues. To the Western investors (two-thirds of the company, which controls AVTOVAZ is owned by Renault-Nissan Alliance) and the bosses are still listening.Директор «АвтоВАЗа» — самая трудная должность в мировом автопромеVladimir Putin at the car Lada Vesta ahead of the plenary session of the 12th meeting of the International discussion club “Valdai”

But last week the automaker confirmed the dismissal Andersson. He was recognized as responsible for the losses of the enterprise, which since 2014 has tripled in the past year reached almost 74 billion, that is about a billion dollars. Debts of AVTOVAZ exceed its assets by 68 bn, and auditing company Ernst & Young warned of “substantial doubt” in the capabilities of the automaker to “continue as an operating concern”. Mostly, these sad results caused by dismal state of the Russian car market: last year, car sales fell 36% amid rising inflation and the falling ruble.

Probably the real reason for the dismissal of Anderson — his aggressive reduction of the Russian base of suppliers and workforce, from 70 thousand to 44 thousand. For his retirement, it seems, is the minority shareholder of “AVTOVAZ” — the state Corporation “rostec”, whose head Sergei Chemezov is included in the inner circle of Putin.

This story shows to what degree remains unfinished industrial transformation of post-Communist Russia in the quarter-century after it started. The problem of “AVTOVAZ” was even more severe than most other former Soviet enterprises, but they clearly illustrate how much remains to be done and what potential could be released in Russian industry when the right political climate.

The new head of “AVTOVAZ”, the Frenchman Nicolas Mora, went to maybe the hardest position in the global automotive industry. To avoid the fate of his predecessor, he will certainly have to act more carefully, balancing between the openly conflicting interests of Renault, the Kremlin, factory and suppliers. Minister of industry and trade of Russia has already stated that “the new President’s activities must be primarily focused on the Russian suppliers”.Директор «АвтоВАЗа» — самая трудная должность в мировом автопромеSergey Chemezov

A particular problem was the city of Togliatti, where AVTOVAZ is the largest of several hundred Russian single-industry towns, almost entirely dependent on a single enterprise. Cities not only in Russia, but they were typical of the Soviet planned economy, where public enterprises provided everything from housing to business to sports and entertainment complexes.

This dependence in combination with the size of the plant does the manufacturer of “Lada” extremely politically sensitive. During the crisis of 2009 AVTOVAZ has received one of Russia’s largest financial “rescue circles” from the Kremlin, fearing social instability. Now, when the recession is triggered (at least partly) foreign policy of the Russian state, concerns about rising unemployment, possibly even stronger.

The situation is aggravated by the fact that the chain of AVTOVAZ and sales of its products have long been associated with selfish and even criminal interests. Great difficulties for Andersson started when he tried to get rid of corrupt suppliers of low-quality components.

If the Russian economy will begin to recover, reform Bo Andersson will be the Foundation on which to build the business Nicolas Moore. Andersson was able in record time to bring to market two new models that got popular. But the French Manager will have to continue to work to increase efficiency and product quality. If the government really wants this to happen, and are willing to accept a further reduction of jobs by providing targeted support, this could be achieved.

Unfortunately, the dismissal Andersson proved to be a very different signal is completely the opposite who wanted to submit, when he was sitting in the passenger seat next to Putin-driver.

Original article: Neil Buckley, “Russia must submit the correct signal due to problems of “AVTOVAZ””, Financial Times, 23 March

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