Russia is not for faint-hearted investors. Boom to bust to boom has been the pattern of recent years. Some, such as GM decided to make a Rexit. Renault, though, stayed and may eventually reap rewards from its shareholding in AvtoVAZ and the Lada brand, which commands 20 per cent of an improving market for new vehicle sales.
Russia rises, Lada rises higher
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As at the end of the third quarter, registrations had risen by 10.6 per cent to 1,129,374 units. By way of comparison, this was more than Spain (933,142) but a lot less than Italy (1,533,710) and France (1,560,879) with the UK and Germany above the two million mark. So a recovery, not a boom. By year end, the total should be just shy of one and a half million. That would be a modest improvement on the 1,425,791 vehicles sold in 2016.
This year’s total is a long way short of 2008, when sales tracked a surging oil price to almost 2.9 million cars and LCVs.
These numbers are all a long way short of what happened in 2008, when registrations tracked a surging oil price to almost 2.9 million cars and LCVs. This led to many wondering how quickly Russia might become a bigger market than Germany. Then came the crash in 2009 but there was another big gain in 2012 when the three million mark came close to being crossed. Again, this was the local market being in sync with the price of a barrel of oil. This proved to be the highpoint as Russian sales fell for the next four years due to a number of factors, including sanctions being applied by many countries following the attack on Crimea. The collapse in the value of the ruble and double digit inflation scared many consumers away from making major purchases.
Lada’s range, which is full of the models which the market remains keen on – low-priced small cars and crossovers – is doing especially well and the brand remains in first position. Exports are a different story although things are improving on that front. The brand does moderately well in a handful of countries, including Czechia, Germany, Lebanon and some markets in Africa. AvtoVAZ commenced 2017 with the ambitious target of doubling exports this year to 30,000 vehicles.
October was the eighth straight month of year-on-year gains for the Russian passenger vehicle market. Last month, AvtoVAZ delivered 28,638 Lada cars at home which was a 22.9 per cent improvement over the same month in 2016. Year to date, the total is 249,845 units, a gain of 17.2 per cent.
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By GlobalDataVirtually one out of every five vehicles sold in Russia this year has been a Lada. Second placed Kia is a long way behind on 12.7 per cent. AvtoVAZ and Renault need to be alert to the dangers from the Korean firm, though, as its models are all younger than what Lada offers.
Manufacturing & the R-N-M Alliance
PJSC AvtoVAZ is controlled by Renault and is the French manufacturer’s largest division in the Russian Federation. Part of the Renault-Nissan-Mitsubishi Alliance, AvtoVAZ uses Renault-Nissan powertrains and platforms, modified and/or strengthened for the extreme conditions of the local market.
The company operates out of two main production locations. The legendary and vast Togliatti manufacturing complex is one of the world’s largest car plants. It now produces not only Lada models but also Renault, Nissan and Datsun models. The Izhevsk factory, meanwhile, builds certain Lada and Nissan small cars.
Last year, 416,000 cars were built at Togliatti of which close to 300,000 were Ladas.
Last year, 416,000 cars were built at Togliatti of which close to 300,000 were Ladas. The complex has been greatly down-scaled but still its annual capacity is one million vehicles.
AvtoVAZ financials improving
The latest numbers, as reported by AvtoVAZ in October, show Group revenues up by 21.5 per cent between 1 January and 30 September. As noted above, the Lada brand’s performance in the domestic market share (PC+LCV) is good, increasing by 1 point to 19.6 per cent. The addition of the Vesta SW and SW Cross from the end of October should give the brand a further lift in the remaining two months of CY2017.
AvtoVAZ Group (AVG) is at last having some much needed success in markets outside the Russian Federation, exports having surged by 61 per cent versus the same period of 2016. This includes Knocked Down kits.
AVG’s revenues rose by 21.5 per cent in the 9M period to RUB158.6bn (EUR2.33bn). The company credits State support programmes for the domestic car market as having been a major help in attaining this result. Meanwhile, cost cutting and ‘positive foreign exchange rate effects’ led to an operational profit of RUB1.9bn. Losses after tax improved to RUB4.5bn. Raw material price rises, ‘changing forex conditions’ and ‘possible provisions’ are three factors which AVG has warned may negatively affect its results for the final quarter and the full year.
AVG’s president and CEO Nicolas Maure stated on 23 October: “In view of upcoming headwinds, we must further protect the company from external risks, and proceed with the cost reduction activities based on strict execution of the action plans. On this basis, we keep our forecast to have positive operational results in 2018, and to further improve the net result.”
The net loss for 2016 was a painful RUB44.8bn, of which restructuring and related costs made up RUB25bn.
The net loss for 2016 was a painful RUB44.8bn, of which restructuring and related costs made up RUB25bn. Although bad, it was at least an improvement on the record red ink record in 2015, which amounted to RUB73.9bn.
Current and future models
The original Niva from the 1970s, now renamed, is still available in three- and five-door form. Russia remains the main market. The Taiga name is used in Austria and also, since August 2013, in Germany. The 4×4 Urban, a facelifted and renamed model had its world premiere at August 2014’s Moscow motor show.
A replacement model has been delayed many times. It is now due in 2018. In January 2016, AvtoVAZ transferred production of the 4×4 to the same line at Togliatti which was already building the Priora.
The Priora is the second oldest Lada model still on sale after the 4×4. The 2110, which dates to 1997, was a range which once comprised a four-door sedan (2110), wagon (2111) five-door hatch (2112) and three-door hatchback. All were available with eight and sixteen-valve variants of a 1.5-litre engine. Only the sedan, which started life as the VAZ 2110, remains in production.
Production of a facelifted version started in November 2005, at which time a model name change to Lada Priora also took place. This model debuted at the 2003 Moscow show as the VAZ 2170 and then in near-production form as the Priora at the August 2004 event. The final-spec cars then appeared at the same event in August 2005.
The Priora was facelifted again in April 2007. The standard engine became a 72kW 1.6-litre. A three-door hatchback variant, the Priora Coupe, was launched in Russia in early 2010. This has since been discontinued so now only the sedan remains. With prices starting at just RUB399,900 (EUR5,841) it is spectacularly cheap. Production is expected to end in mid-2018.
The Granta, the replacement for the 2100 series cars (of these, only the Priora is still made), had its global debut at the Moscow motor show in August 2011. Production started three months later, with cars reaching Russian dealers in December 2011.
Sales of 75,910 units during the year to the end of October makes the Granta the Russian market’s number one model.
This 4,260mm long sedan uses the same platform as the second generation Dacia/Renault Logan. The Granta was the first model to be built at the IzhAvto plant which AvtoVAZ bought during 2011. The company said in December 2011 that it would plough EUR4bn into the facility, lifting production capacity to 300,000 vehicles per annum. Granta assembly began in June 2012.
The Granta Liftback was revealed at an event in St Petersburg in May 2014. Combined sales of 75,910 units during the year to the end of October makes the Granta the Russian market’s number one model.
The next generation Granta and Granta Liftback are due to be released in 2021 and 2022 respectively. Before then, both of the existing cars should be facelifted; most likely during the second quarter of 2018.
The X-Ray (development code: BGA) went into production in December 2015, with the HGA X-Ray Cross (provisional name) due to be added during 2018. These small cars were previewed first by the Lada C-Cross concept at the Moscow motor show in August 2008, then by the XRAY concept at the 2012 show, the XRAY Concept 2 at August 2014’s Moscow show and the XCODE concept at the 2016 Moscow motor show. The first X-Rays were in Russian showrooms in February 2016.
Renault and Dacia’s B0 platform is used for this small crossover/SUV. The X-Ray will likely have a facelift in 2020. The next generation X-Ray and X-Ray Cross are due out in 2023.
The Vesta, a 4,410mm long sedan, has been built at the Izhevsk plant in the Western Urals since September 2015. The car was introduced to the media during the following month by not only AvtoVAZ’s then CEO Bo Anderrson but also by Russian president Vladimir Putin. Sales commenced on schedule in November 2015.
The Vesta series will eventually replace the 2110, 2111, 2112 & Priora models. It is intended to compete with the big selling Kia Rio and Hyundai Solaris.
According to AvtoVAZ, the Vesta was the first car for the Lada B platform. This architecture is believed to be based on a Renault-Nissan architecture.
The Vesta Cross was revealed in concept form at August 2015’s Moscow Off-Road Show. The production model, the Vesta Cross SW became a derivative of the Vesta SW (station wagon), both of these were launched in the Russian market just a few weeks ago.
The Vesta series had combined sales of 61,270 vehicles over the first ten months, making this AvtoVAZ’s number two model.
Facelifts for the Vesta, Vesta SW and Vesta SW Cross should be on sale in 2019. These four cars had combined sales of 61,270 vehicles over the first ten months of 2017, making the Vesta AvtoVAZ’s number two model in Russia behind the Granta.
The second generation Vesta series is due for release in 2023. These three cars will likely use an updated Lada B platform. There is also a chance that AvtoVAZ might instead gain the Alliance CMF C/D architecture which will no longer be state of the art by then, and therefore suitable for a budget brand such as Lada.
The Kalina is another small car. It is available in four forms: 3,893mm long hatchback and Sport, plus 4,083mm long SW and cross. The second generation model had its world premiere at the Moscow motor show in August 2012. The five-door hatchback and wagon were both there and went on sale in Russia from June 2013. Production commenced during the previous month. The Granta can be thought of as a Kalina sedan.
This Kalina cross was revealed at the Moscow motor show in August 2014 and went on sale in Russia during the following month. It is powered by a 1.6-litre four-cylinder petrol engine. There is another model which is more or less the same car, but without the raised suspension of the cross. This is the Kalina SW (station wagon).
The On-DO, the first Russian-made model for Nissan’s revival of the Datsun brand, uses the same platform as the Kalina. It is manufactured by AvtoVAZ at the same Togliatti works as the Kalina.
The final model in the Lada line-up is the Largus. This C segment wagon is based upon the first generation Dacia/Renault Logan MCV. Production commenced on a new line at the AvtoVAZ plant in Russia in March 2012.
The Largus had its global debut at the Moscow motor show in August 2011. There are both delivery van (Largus wagon) and seven-seater (Largus universal) passenger variants. As for the Largus Cross, this is the wagon with protective grey plastic on the bumpers, around the wheelarches and on the side sills. It premiered at the Moscow motor show in August 2014, going on sale in Russia three months later.
Lada remains weak when it comes to light commercials although the Largus wagon has had a good 2017 with a gain of 17 per cent for the year to the end of October. The total number of units sold was only 7,711 though.
The second generation Largus universal should go on sale in Russia in 2020. Only minor updates are expected between now and then.
A C segment SUV could lift Lada pricing into the air above where it presently competes.
Why Lada needs a model like the Nissan X-Trail
What about additional models, and in particular SUVs? AvtoVAZ is not unaware of market trends and if it is ever to become a serious exporter, a range of crossovers and SUVs in the A, B, C and D segments will be needed. The company’s thinking was in evidence at the 2016 Moscow motor show. This was where the XCode concept was first seen. The design study will hopefully prove to have been a preview of a C segment SUV which would have the added and crucial benefit of lifting Lada pricing into the air above where it presently competes.
No official statement about building a vehicle similar to the XCode has been made but it is an open secret that a future Lada along these lines is under development. Expect to see it reach production at Togliatti by 2020. After that, a D segment SUV around the same size as the Skoda Kodiaq would be the next logical move.
Overview
Renault’s decision to become involved with AvtoVAZ has weighed heavily on the French state-owned firm. The fact that the maker of Lada cars has sustained enormous losses, is yet to become self-financing and remains a long way from being so, does not appear to have discouraged the management of Groupe Renault. Having been forced to inject funds into the company to keep it afloat last December, this also gave Renault a more than 50 per cent stake and the need to consolidate AvtoVAZ’s losses onto its own balance sheet.
Going into 2018, Russia is a long way behind European countries when it comes to any plans for battery-electric recharging and hydrogen refuelling stations in cities, let alone any form of incentive for OEMs to invest in locally built hybrid or PHEV models. Renault cannot delay spending on such technology forever as its rival HMG is already very strong in Russia and will at some stage begin to locally assemble or even manufacture more advanced tech. Small steps in infotainment have at least been taken.
The biggest question is how AVG might transform Lada into a brand which becomes desirable and commands higher margins.
The strategy for the next few years is to make AVG profitable. What happens after this is unclear. The biggest question is how AVG might transform Lada into a brand which becomes desirable and therefore commands higher margins than today’s bargain basement pricing model.
It is not impossible to imagine the brand eventually becoming similar to where Skoda Auto was a decade ago. That will take a great deal more of French tax payers’ money, much focus from AVG and Renault executives and crucially, a stable domestic market for passenger vehicle sales and an aggressive but realistic plan for exports to regional and worldwide markets. The trouble is, Groupe Renault already has such a division. It’s called Dacia.
Future model plan reports for other manufacturers can be viewed in the OEM product strategy summaries section of just-auto.com.
Future product program intelligence
Additional data on vehicle lifetime and future product plans, such as code names, production plants and expected annual build, are available in PLDB from QUBE.
After a look at what Groupe PSA is planning for Opel-Vauxhall, the next OEM for just-auto’s in-depth examination of current and future models will be Dongfeng Motor including its Venucia brand.
