ST. PETERSBURG, Russia - AutoVAZ (Volga Automobile Works) accounts for 70 percent of Russia's light car production. But the maker of Lada cars lost over $400 million last year and is deeply indebted to the Russian government.
The huge factory complex in Togliatti, 1,000km southeast of Moscow, is very inefficient. It takes 300 employee hours to build a car, 20 times more than a Toyota plant in Japan.
Although Fiat helped build the production line in the late 1960s and early 1970s, AutoVAZ has not modernized like Nizhny Novgorod's GAZ and Tatarstan's Kamaz plants.
Now, AutoVAZ owes the government 11 trillion roubles ($2 billion) in back taxes, payments to the pension fund, and other debts. Suppliers are sometimes paid in completed automobiles, which they must sell through an intermediary.
LogoVAZ, the carmaker's official distributor, has been accused of absorbing the profits on the nearly 700,000 cars produced in 1996. AutoVAZ officials have been accused in the Russian press of accepting large bribes from the distributor.
Boris Berezovsky, head of LogoVAZ, financed much of Boris Yeltsin's presidential campaign and is now deputy secretary of the Security Council.
AutoVAZ badly needs foreign investment, but its management has been hostile to potential partners. Daewoo offered to pay off $1 billion of AutoVAZ's debt to the government and invest $2 billion. In return it wanted a 51 percent share in the company and generous tax benefits to import machinery and cars into Russia. AutoVAZ President Vladimir Kadannikov rejected the deal.
GM has revealed no details about its financial commitment to AutoVAZ.
Despite uncertainty about AutoVAZ's ability to pay off its debts, AutoVAZ remains Russia's largest car company. The firm benefits from a widely recognized product, an effective parts distribution system, and the durability of its cars on Russian roads. It continues to release new models, including a new minivan.
Russia produced 868,000 cars in 1996, 4 percent more than in 1995. AutoVAZ and GAZ accounted for 92.6 percent of the total. In the first quarter of 1997 car production rose 16 percent to 224,000 units. Truck production fell 3 percent to 33,200 units.
AutoVAZ built 673,000 vehicles in 1996, 9.4 percent more than in 1995 and its highest figure in five years.
AutoVAZ said it exported 132,288 cars last year. The company got off to just as good a start this year, despite suffering from the same, irregular supply of assembly parts as all Russian carmakers.
In March the Togliatti plant produced an average of 168 cars an hour, five more than in March last year. It made 59,675 cars in March and 171,934 in the first quarter.
According to its business plan, AutoVAZ aims to build 716,000 cars this year.
Output of the new VAZ-2110 sedan hit an average of 60 units a day in late March. By then AutoVAZ had produced 5,000 VAZ-2110s since they entered production.
AutoVAZ spokesman Vladimir Isakov told the Interfax news agency the company was now developing a station wagon version, the VAZ-2111.
Isakov also said that AutoVAZ, in cooperation with factories in Saratov, Samara, Kaluga, Kursk and Zelenograd, was increasing production of the Samara family of cars with Russian-made electronic ignition and fuel injection.
But AutoVAZ is still threatened with bankruptcy, despite increased output and more regular tax and other payments.
Kadannikov told a meeting of company directors and executives in late April that he thought a government plan for restructuring debts would not save the company. He said the government intended to take 50 percent of the company's shares as security for the debt.
Government experts have valued Russia's biggest carmaker at just $1 billion. But, according to Kadannikov, auditors Price Waterhouse have valued the company at not less than $6 billion.
Some independent observers say AutoVAZ management is looking for ways to rid itself of the debt burden.
One plan is to spin off the car factory in Togliatti as an independent company. AutoVAZ would retain the dealership network, the main source of profit.
The main debt would lie with the new company. Shareholders at their annual meeting, due 31 May, will have the final say on whether to incorporate the Togliatti factory.
Meanwhile, AutoVAZ is facing new competition.
Daewoo's 50-50 Uzbek joint venture, UzDaewooAuto, is already selling Daewoo models in Russia at prices similar to those for Ladas.
Daewoo produced 24,878 cars in its first six months in operation, the second half of 1996.
UzDaewoo exported about 2,000 cars to Russia, Belarus and Kyrgyzstan. It plans to make 125,000 this year.
New companies such as UzDaewoo have substantial advantages over the Russians. They are not weighed down by obsolete plants, inflexible management and debt.
Indeed, say the experts, the largely unsatisfied Russian market for cars offers a major incentive for the development of car manufacturing in other parts of the former Soviet Union.