5 Min Read
* Renault-AvtoVAZ still six months from joint vehicle
* Renault models cannot be built at AvtoVAZ plant until 2013
* Waive of custom tariffs on parts little use to AvtoVAZ
* AvtoVAZ employs 160 translators to help with integration
By John Bowker
TOGLIATTI, Russia, July 22 (Reuters) - Renault and Russia's AvtoVAZ are still seven months from their first joint-manufactured vehicle after a near three-year alliance, a pace that may restrict plans to dominate the Russian market.
The carmakers are building a 400 million euro ($577 million) joint-assembly platform at AvtoVAZ's 900,000 car-a-year Togliatti plant that will be able to produce Renault, Nissan and Lada models.
The first Lada will not be ready until at least February.
Renault models are unlikely to be produced until 2013, company officials said, meaning the French firm cannot produce more than its Moscow plant's annual 160,000 vehicles for around two years -- missing out on a fast-improving market.
"The biggest challenge about investing in Russia is speed. There is huge potential, a low level of cars per head and a willingness from the government to modernise the car industry. But speed versus competitors (is the challenge)," said Francois Provost, deputy managing director for Renault in Russia.
Renault is in a fight with Western rivals including General Motors , Ford and Volkswagen (VOWG_p.DE) to grab a share of the Russian market, which is expected to double sales to around 4 million units by mid-decade.
All have signed up to the Russian government's 'Decree 166', a plan to encourage carmakers to increase local production in return for a waiving of customs tariffs on parts.
This does not help AvtoVAZ, as it negates the benefits of a substantial local supply chain built during its 45-year history.
"We have a lot of problems with (Decree) 166. It is to create capacity that didn't exist. The competition will come and fight for every car, and will not pay a penny of custom duty," AvtoVAZ CEO Igor Komarov told guests at a dinner in Togliatti.
FACTBOX on Russia's automotive industry:
Renault bought a 25 percent stake in state-owned AvtoVAZ for $1 billion in 2008, a decision that looked woefully misjudged when the subsequent year's industry crisis meant the Russian firm had to be bailed out by the government.
Renault agreed to support the group with technology and expertise, and the market has recovered spectacularly: 30 percent sales growth last year is expected to be followed by more than 40 percent in 2011.
The Renault-Nissan alliance now has a target of 40 percent market share, or 1.6 million annual units, a year alongside AvtoVAZ, up from 34.4 percent last year.
But months-long talks between Renault and AvtoVAZ shareholders about taking a controlling stake show no sign of ending, while the challenges of integrating the two firms will serve as a warning for other Western companies looking to take over Russian state groups.
"Progress has been painfully slow despite a series of announcements about new model and investment plans," said IHS autos analyst Tim Urquhart.
"A deal has yet to be agreed for Renault to take a controlling stake in AvtoVAZ, there is increasing competition from foreign OEMs (Overseas Equipment Manufacturers) in Russia, and the long-term macroeconomic situation is somewhat unsure," he added.
Renault's integration with AvtoVAZ -- based in the one-industry Volga town of Togliatti, south-east of Moscow -- has required new production capacity and the assimilation of cultures and languages.
Around 160 translators are employed by the company, according to one local manager.
Patrick Hemmer, project leader for the new body shop on the joint platform, said the site was being put together by 50 percent Renault and 50 percent AvtoVAZ workers, but the Renault employees were focused on the higher-skilled work.
"They are working on different activities," he told Reuters, adding AvtoVAZ staff were being sent in groups to Paris for training to match the standards of their counterparts.
Renault's Russia chief Bruno Ancelin remained defiant that the partnership with AvtoVAZ would be seen as a smart business move in the long term, based on the success of the group's 1999 tie-up with Nissan.
"It was said at the time about Renault-Nissan that it would be better to put 5 billion euros ($7.2 billion) in a casket and sink it to the bottom of the sea ... Lada has value in the Russian market," he said.
($1=31.10 Rouble)($1=.6933 Euro)
(Reporting by John Bowker; Editing by David Hulmes)