MOSCOW (Reuters) -- Renault-Nissan finalized a long-awaited deal to take control of Lada-maker AvtoVAZ as it looks to snatch market share from rivals in Russia by offering affordable modern vehicles to a rising middle class.
Carlos Ghosn, leader of the Franco-Japanese alliance who was in Moscow to sign the agreement, said the deal deepens a four-year partnership it has had with AvtoVAZ to tap demand for new cars from Russians with growing salaries and rising aspirations.
"Russia is poised to become the largest auto market in Europe by 2015," Ghosn told a news conference on Wednesday. "The market is highly competitive and all the major foreign automakers already have operations here. But let's be clear -- we are doing more than building and selling cars in Russia."
Ghosn expects the new venture to capture 40 percent of Russia's market by 2016, up from 30 percent, as Renault-Nissan contributes technology and product knowledge to Lada while benefiting from AvtoVAZ's manufacturing facilities.
Russia's car market has been growing rapidly, supported by a rise in disposable incomes. The country's middle class has increased from 1 million in 1999 to between 15 and 30 million, according to recent research by Sberbank. Car sales in Russia grew 40 percent last year to more than 2.6 million vehicles, recovering most of the ground lost after halving in the post credit-crunch slump of 2009. While sales growth has been flattening out, overall sales for the year look set to reach around 2.9 million and Ghosn expects yearly sales to reach 4 million at some point in the 2020s.
Reviving the Lada brand -- still Russia's market leader -- is a top priority for Ghosn. AvtoVAZ only survived the 2009 slump with the help of a state bailout and its clunky saloons with a reputation for breaking down are often the butt of jokes.
"Without any doubt, the Lada brand will be in the short term and the long term the largest brand in Russia for the alliance," Ghosn told Reuters. "We are here to strengthen the brand and give it everything it needs."
Two new Lada models, the Largus and Granta, have attracted high demand and the company is still trying to deliver six months' worth of orders. AvtoVAZ, which has a large factory in the city of Togliatti on the Volga, is targeting production of nearly 1.4 million Lada, Renault and Nissan cars in Russia by 2015.
"If you bring a modern product under a Russian brand, there would be a very strong demand for it," said Ghosn.
Under the deal, to be completed by mid-2014, Renault-Nissan will invest 23 billion rubles ($742 million) to take control of AvtoVAZ via a 67.13 percent stake in the joint venture by mid-2014. The joint venture will then own 74.5 percent of AvtoVAZ.
Russian Technologies will hold 32.87 percent of the venture.
As part of the agreement, Renault-Nissan will have eight seats on an expanded board of 15 members, up from 12 earlier.