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AvtoVAZ to Build New Lada Models on Renault Platforms by 2010
30 Jun 08
Lada's alliance with Renault will give Russia's largest passenger car manufacturer the vehicle technology it needs to defend its dwindling market share.
Global Insight Perspective | | Significance | AvtoVAZ has announced that it plans to manufacture two new Lada models based on Renault platforms by 2010, according to a company statement. | Implications | The announcement is the first tangible result of the alliance between the two companies, which saw Renault acquire a 25% stake in AvtoVAZ in March. As Russia's largest indigenous carmaker, AvtoVAZ is a company with massive potential, but it is currently constrained by an outmoded vehicle line-up. | Outlook | Although it has remained the passenger car market leader in Russia in recent years, AvtoVAZ has seen its market share eroded by foreign competitors that are increasingly establishing production facilities in the country. A new range of Lada models utilising Renault vehicle technology should allow AvtoVAZ to exploit the massive growth potential that exists in the Russian market. |
Lada Announces New Renault-Based Models Russia's largest carmaker by sales volumes, AvtoVAZ, has announced that it will build two new models for its main Lada passenger car brand based on Renault vehicle technology. The new models will be launched in the Russian market in 2010 and will be built on Renault platforms and are also likely to feature Renault powertrain technology. Although the press release announcing the move contained little in the way of hard information, AvtoVAZ said that one model would be a 5-seater passenger car, while the other would be a 7-seater model, most likely based on the Mégane Grand Scénic multi-purpose vehicle (MPV) platform. The announcement marks the first fruits of the alliance between Renault and AvtoVAZ that was sealed in March, when the French carmaker acquired a 25% stake in AvtoVAZ (see Russia: 4 March 2008: Renault Confirms US$1.17 bil. Purchase of AvtoVAZ Stake), giving it a sizeable influence over the future business strategy in the Russian passenger car market. In addition to the two new Renault-based Lada models scheduled for launch in 2010, AvtoVAZ is also planning a new low-cost passenger car design and a sport utility vehicle (SUV) that may end up sharing its underpinnings with the recently launched Renault Koleos SUV. The Koleos is manufactured by Renault's South Korean unit, Renault Samsung, and is designed to provide a value-for-money alternative to other mid-sized mass-market SUVs such as the Mitsubishi Outlander, Citroën C-Crosser, and Honda C-RV. Russian Passenger Car Sales (Actual and Forecast): 2003-12 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008(F) | 2009(F) | 2010(F) | 2011(F) | 2012(F) | 1,069,602 | 1,274,374 | 1,377,894 | 1,799,778 | 2,400,287 | 3,065,776 | 3,437,637 | 3,625,316 | 3,859,801 | 4,068,714 | F: Forecast |
The growth potential of the Russian passenger car market is immense, with sales forecast to rise by 69.5% between 2007 and 2012 to 4.07 million units. It is therefore hugely attractive to Western European and Japanese original equipment manufacturers (OEMs) that are facing stagnating sales in their traditional core markets. In 2007 the Russian passenger car market rose by 30.4% year-on-year (y/y) to 2.59 million units, maintaining the accelerated growth pattern recorded in recent years. AvtoVAZ's Lada brand was still the market leader, selling 663,500 units during the year, which meant a market share of 27.7%. However, although this figure was more than three times the 199,000 units recorded by Lada's nearest rival, Chevrolet, it actually equated to a sizeable decline for Lada in comparison to 2006, when the company sold 707,000 units and took a market share of 39.1%. This is hardly surprising considering the proliferation of new foreign entrants in the Russian market, with all the serious players establishing production facilities in the country at the two main vehicle production sites in Kaluga, 180 km south of Moscow, and St Petersburg. However, although it is inevitable that the increasing deregulation of the Russian passenger car market will see Lada's dominant market position eroded, this process is being accelerated by the outmoded nature of the company's passenger car platforms. In fact Russia's best-selling passenger car remains the Lada Riva, which is a development of the original Fiat 124-based Lada Type VAZ-2101, which was introduced in 1970. Outlook and Implications In an increasingly sophisticated and affluent marketplace, Lada was never going to be able to sustain a market-leading position with models such as the Riva, while other key models such as the Samara and the 110 also fall well short of modern quality and design standards. As a result Lada's relationship with Renault could not have come at a more opportune time. The alliance will allow Lada to develop a range of new passenger cars on Renault's platform technology, which will give AvtoVAZ competitive product offerings against the likes of Chevrolet, Ford, and Hyundai, which have taken sales from Lada in recent years. With Russia set to overtake Germany as the world's fourth-largest passenger car market behind the United States, China, and Japan by 2012, Lada should be in a much better position to grow with the market and retain its share. Although there are no specific details about the kind of models Renault will help Lada develop initially, the information that the models will be a 5-seater and a 7-seater seems to indicate some kind of a C-segment model developed from the current Mégane ”C” platform and a 7-seat MPV based on the Mégane Grand Scénic. As a major shareholder in AvtoVAZ, Renault stands to benefit financially from rising sales volumes, which will also help the company meet its own ambitious global sales target. However, Renault needs to be mindful of how its AvtoVAZ investment dovetails with its own Russian market strategy, with the AvtoFramos plant in Moscow manufacturing the Logan low-cost car. This operation has proved a success since its launch in 2005, with sales doubling in Russia in the first quarter of 2008. Renault must attempt to ensure that the new Renault-based Lada models are in separate vehicle categories and price points to avoid either operation cannibalising sales. This may prove to be a difficult balancing act to achieve.
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