The American company General Motors (GM) is leaving the joint venture GM-AvtoVAZ, which produces Chevrolet Niva SUVs in Togliatti, the AvtoVAZ press service said on Monday and confirmed the representative of GM.
AvtoVAZ will buy back a 50% stake in the joint venture from an American partner, increasing its stake to 100%. GM Russia focuses on promoting, selling and servicing the premium line of Cadillac and North American Chevrolet brands. Now the company is significantly expanding its Cadillac line of premium crossovers and is also planning on updating its Chevrolet lineup, ”she said.
The parties did not disclose the financial terms of the transaction.
The revenue of the joint venture GM-AvtoVAZ in 2018 increased by 1%, to 17.043 billion rubles., Net profit amounted to 359.45 million against 4.17 billion rubles. loss a year earlier, follows from SPARK data. AvtoVAZ’s revenue in 2018 under IFRS increased by almost 26%, to 283.13 billion rubles., Net profit amounted to 5.86 billion against a loss of 9.66 billion rubles. in a year earlier.
Why do Americans leave the last joint venture in Russia
“I am grateful to our partners from GM for more than 18 years of fruitful cooperation,” said Yves Karakatzanis, President and CEO of AvtoVAZ (his words are quoted in the company's message). AvtoVAZ agreed on a strategic partnership in the development of the VAZ-2123 Niva SUV with General Motors Corporation back in 2000, and the joint venture was established in 2001. The transaction was organized as follows: AvtoVAZ contributed patents, buildings and equipment in exchange for 41.6% of capital and management control as a contribution to the joint venture; GM’s contribution, which received the same share - $ 100 million. The third shareholder of the enterprise was the European Bank for Reconstruction and Development (EBRD) - it acquired the remaining 16.8% of the capital for $ 40 million and provided a loan of another $ 90 million. In 2012, the EBRD left the joint venture, selling its stake to AvtoVAZ and GM, which increased their stakes to 50% each. The transaction amount was not disclosed, but, according to unofficial data, it amounted to $ 80 million.
The capacity of the GM-AvtoVAZ plant is 98 thousand cars per year, it was assumed that by 2015 they will grow to 120 thousand, and investment in expansion will amount to about $ 200 million. But this did not happen.
At the end of 2018, the plant was loaded less than a third - only 31.33 thousand cars were produced. Underloading is also connected with the fact that from 2012 to 2016 the automotive market in Russia decreased by more than two times - from 2.9 million to 1.4 million units, and in the next two years, although growth resumed, It was not possible to return to the level - by the end of 2018, only 1.8 million tons of cars were sold.
Back in 2015, after 20 years of presence on the market, GM became the first international carmaker to leave Russia. The company closed a plant in St. Petersburg and stopped selling Opel and Chevrolet cars (except premium models). After that, the stake in the joint venture with AvtoVAZ remained the only GM asset in Russia.
“For GM, the Russian market is not strategic, at one time they stopped all projects, except for a joint venture with AvtoVAZ. At the same time, the question now is about updating the model range of the joint venture, which will require investment, ”said Vladimir Bespalov, an analyst with VTB Capital. GM-AvtoVAZ was created when AvtoVAZ was not yet controlled by the Renault-Nissan alliance, which competes globally with GM, he recalls. In January 2019, Alliance Rostec Auto B.V., a joint venture of the Renault-Nissan alliance and Rostec state corporation, increased its stake in AvtoVAZ to 100% by purchasing shares from minority shareholders and delisting from the Moscow Exchange. Now French Renault indirectly owns 67.6% of AvtoVAZ.
Why AvtoVAZ redeems a partner’s stake
The GM-AvtoVAZ plant in Togliatti will be able for some time to continue producing and selling Niva cars under the Chevrolet brand owned by GM, AvtoVAZ said in a statement. After this unnamed period, SUVs are planned to be transferred under the Lada brand. We are talking about a period of up to a year, a source close to AvtoVAZ explained to RBC.
“Under the agreement, AvtoVAZ will receive the second classic SUV in the line of cars. The Niva proposal will organically complement the legendary [Lada SUV] 4x4 and support the further development of AvtoVAZ, ”said Yves Karakatzanis (his words are given in the message).
A representative of AvtoVAZ explained to RBC that the inclusion of the Niva plant in the company’s line will not cause “internal cannibalism” of the classic Lada 4x4 SUV, as these cars have different customers. Existing contracts with Niva suppliers and dealerships will remain unchanged during the transition period.
In November 2019, only 1950 Chevrolet Niva was sold, which is 17.5% less than a year earlier. At the same time, AvtoVAZ sold 2,919 Lada 4x4 SUVs (-5.7%), they are among the top 25 best-selling cars compiled by the Association of European Businesses. According to the results of January-November 2019, 29.2 thousand units of such SUVs were sold, but the Chevrolet Niva did not get into this rating.
For AvtoVAZ, the repurchase of GM's share in the joint venture is the return of the Niva brand and the development of the model range in the SUV segment, Bespalov notes. AvtoVAZ, despite the fact that the car market has not fully recovered from the recession of 2013-2016 and may again be in the red by the end of 2019, managed to maintain leadership and even slightly increase its share - up to 21%.
“Historically, the production processes of the joint venture are deeply connected with the main AvtoVAZ site in Tolyatti, which is an excellent starting point for further development in order to increase the level of customer satisfaction of our famous Niva,” said Karakatzanis.