| TOGLIATTI, Russia
TOGLIATTI, Russia Aug 29 AvtoVAZ, the
Russian carmaker controlled by Renault-Nissan, may bring some
parts production in-house as it struggles to get more
competitive pricing and stamp out corruption in its local supply
chain, senior executives said.
The maker of Lada cars is studying plans to invest in the
manufacturing of components including seats and smaller metal
body parts currently bought from suppliers, Chief Financial
Officer Evgeny Belinin told reporters.
"We have the buildings and in some cases the equipment," he
said. "So it's not like we're starting from scratch."
Under Renault, which bought 25 percent of AvtoVAZ
in 2008 and took control this year with Japanese partner Nissan
, Lada is rolling out new models in a bid to reverse
losses and lift its dwindling share of a Russian market blighted
by the Ukraine crisis.
New AvtoVAZ Chief Executive Bo Andersson is seeking to trim
purchasing costs by 2 percent this year despite rising
inflation, the company said in a presentation on Thursday at its
headquarters in Togliatti, east of Moscow.
AvtoVAZ purchasing totals about 140 billion roubles ($3.78
billion) annually, or 56 percent of revenue. Andersson aims to
bring in more Renault-Nissan global suppliers and cost
benchmarks to make savings.
The company now demands "100-percent cost transparency" from
its Russian suppliers, the CEO said in Moscow on Wednesday.
"Some of them give it to me, some of them don't."
He added: "The best suppliers are saying, 'Thank you very
much Mr Andersson, we'll be competitive', and the worst are
saying, 'We don't really know if we want to do this'."
New parts production would be a change of direction for
Russia's largest vehicle manufacturer, which made many of its
own components in Soviet times but has since largely halted
these activities under successive restructurings.
Soon after buying into AvtoVAZ, Renault had vowed to clean
up the murky Togliatti supplier network, where organised crime
was rife - if more discreet than in its 1990s heyday, which saw
gang warfare and shootings in and around the sprawling plant.
Today the situation is much improved, Belinin said, but some
15-20 percent of purchasing is still not competitively tendered.
Even when it is, the bidding is sometimes rigged by contenders
who turn out to be acting in concert or under common ownership.
"If you ask the company auditor for a brief check of how a
tender is done, everything looks OK," Belinin said.
"You have a few bids, everything is fine, but when you go
deeper you understand that all three bidders belong to one man."
Besides such irregularities, executives said, other major
contracts are priced uncompetitively where only one supplier
exists, leading AvtoVAZ to pay as much as double the
international going rate for key parts.
Monopolistic relationships allow suppliers to use the threat
of disruption as a bargaining chip to win better terms when
contracts are renegotiated, said Fujui Hosaka, seconded from
Nissan as an adviser.
"If we're missing the parts we cannot build the cars,"
Hosaka said. "Those suppliers will use this tool as a game. So
we must get rid of this."
The problems are most acute on the older assembly lines,
Hosaka said, which make models including the Lada Kalina and the
On-Do sedan recently launched for Nissan's Datsun brand. The
nearby line modernised by Renault-Nissan is less affected.
With financial goals under pressure, however, some insiders
are sceptical about the scope for in-house parts manufacturing.
"I think it would be a tall order and no small investment," said
another alliance executive who asked not to be identified.
If the Russian market slumps below 2 million annual car
registrations, AvtoVAZ may have to review up to a third of its
2.2 billion euros of planned investments over the next three
years, CFO Belinin acknowledged.
Forecaster LMC Automotive currently expects the market to
shrink 16 percent to 2.19 million car registrations this year.
(1 US dollar = 0.7608 euro)
(Editing by Pravin Char)