For weeks, Renault was reluctant to join the mass corporate exodus from Russia, but on Wednesday it relented.
By Bloomberg
Posted on March 24, 2022
Fifteen years ago Vladimir Putin had a problem. AvtoVaz, maker of communist-era favorite car brand, was the butt of jokes (How do you double the value of a Lada? Fill the tank.) The state-owned company was struggling to keep up with competition from automakers foreigners who ventured into Russia after the collapse of the Soviet Union.
Despite AvtoVaz’s struggles, when the Kremlin put a stake in AvtoVaz up for sale in 2007, Western manufacturers fell in line. Renault prevailed over General Motors and Fiat, with Putin betting that superstar executive Carlos Ghosn would respect the company’s Russian identity, just as he had led the French and Japanese members of the world‘s largest automotive alliance.
Lada’s landing turned out to be a Pyrrhic victory. Renault said on Wednesday it would write off the value of its 2.2 billion euros ($2.4 billion) of assets in Russia, an amount equivalent to about a third of its market capitalization. It is also evaluating options for its more than two-thirds stake in AvtoVaz, an operation that has 45,000 employees.
For weeks, Renault has been hesitant to join the mass corporate exodus from Russia. Closing factories and interrupting trade were going to be far more costly for the automaker than for its rivals. Renault sold more than 480,000 vehicles in the country last year, second only to France and more than double its deliveries to any other country.
With no good options to choose from, Renault has tried to maintain some semblance of the status quo. A few days after Russia invaded Ukraine, the company temporarily shut down its assembly plant near Moscow due to supply and logistics issues. AvtoVaz succumbed to the same constraints, but the two set dates for which they planned to resume operations.
When Renault reopened the Moscow plant this week, the backlash was severe. An MP called for a boycott of the UK, and Ukraine’s foreign minister followed suit soon after. In a few hours, the company gave in, suspending the activity of the Moscow factory.
Renault was on fragile ground before the Russian invasion. Ghosn’s unceremonious ousting from Nissan at the end of 2018 destabilized the two companies’ alliance almost to complete rupture.
Chief Executive Luca de Meo’s plan to turn Renault around called for the automaker to achieve still meager profit margins for years to come. Fitch Ratings warned that this fragile recovery could be derailed. The company’s market capitalization has now fallen below the value of its stake in Nissan.
De Meo has not spoken publicly about what made Renault management stay or leave. If the reversal of decades of investment in Russia by foreign companies is permanent, it could lift AvtoVaz – Lada previously held nearly 80% market share. For now, however, the sanctions will decimate the economy and the asset has proven to be too toxic.
De Meo’s counterpart at Renault’s biggest rival, Stellantis CEO Carlos Tavares, is one of the few Western bosses to have tried to justify keeping the assembly lines going. He said earlier this month that Russia’s withdrawal would hurt workers, not Putin.
“I don’t think we need to make any announcements on the withdrawal or not,” Tavares told reporters. “What is important is that we take care of people.”
Given how quickly the pressure campaign on Renault has forced its hand, Stellantis’ van factory near Moscow may not be operating for very long.
