Last December, months before the AvtoVAZ deal was completed, Ghosn, who is AvtoVAZ chairman, appointed Bo Andersson the first non-Russian CEO in AvtoVAZ’s 48-year history. Andersson, 58, came from Russia’s second-largest automaker, GAZ Group, where he ended years of losses by halting production of Volga-badged cars, focusing on the company’s successful commercial vehicle business and winning contract manufacturing work with Daimler, GM and VW Group. He also slashed jobs. Prior to reviving GAZ, Andersson spent 22 years at GM where his final posting was global purchasing chief. AvtoVAZ officials say Andersson, a former major in the Swedish army who has a reputation for making tough decisions, has had an immediate effect since his January arrival in Togliatti, a factory town located 1,000km southwest of Moscow. “AvtoVAZ changed more in six months under Andersson than in the previous five years,” said Hugues Desmarchelier, the automaker’s executive vice president in charge of vehicles, manufacturing and supply chain.
Desmarchelier, a French engineer who arrived in Togliatti in 2009, a year after Renault took its initial 25 percent stake in AvtoVAZ, oversees one of the largest plants in Europe. The factory, however, is not maximizing its 800,000 units of installed annual capacity. Last year Togliatti’s five assembly lines built just 506,000 vehicles, equivalent to a 63 percent utilization rate, which is well below the 70 percent to 80 percent rate that experts say is needed for a vehicle plant to break even. To help boost the factory Ghosn had added production of Renault, Nissan and Datsun models. They are made alongside Ladas, which compete mainly against used cars in Russia at the low end of the market. For example, vehicles such as the Lada Granta start at the equivalent of 5,900 euros.
Andersson is well aware of the problems that Ghosn has brought him in to solve. “I know we are not competitive and I am working seven days a week to get this organization to understand the challenges ahead of us,” Andersson told Automotive News Europe. One way Andersson is getting his point across is with early morning meetings.
Every weekday at 6:45 a.m. he gathers on the shop floor with the rest of AvtoVAZ’s top management. Each executive gets 3 minutes to explain the current problems he’s facing and to suggest solutions. It’s a big change from the past, one executive said. “AvtoVAZ, a chronic money loser, used to prepare blue-sky scenarios that never happened, but no one was held accountable,” Chief Financial Officer Eugeny Belinin said. That’s unlikely to happen with results-oriented executives such as Ghosn and Andersson at the top of AvtoVAZ’s organizational chart. Andersson wants AvtoVAZ to reach an operating breakeven this year after losing the equivalent of 161 million euros last year. He also wants the company to generate a positive cash flow after burning through 400 million euros last year. AvtoVAZ’s long-term target is a 6 percent operating margin by 2016, slightly higher than Ghosn’s goal for Renault Group 2017.
Assistance from alliance
One major problem that Andersson might find easier to solve at AvtoVAZ than at GAZ is getting the Togliatti plant to produce to its capacity. At GAZ, Andersson had to attract new customers to keep his plants humming. At AvtoVAZ, he can fill capacity by building vehicles for alliance partners. The plant already makes four models for Renault-Nissan. Togliatti’s oldest line builds the Datsun on-Do subcompact sedan and will start output of the mi-Do subcompact hatchback early next year. Those models share the line with the Lada Granta and Kalina. Total output for the line is 850 units a day, according to the automaker.
On a more modern line, the plant has been producing vehicles based on Renault-Nissan’s B0 low-cost platform since April 2013. The models built on this line include the Largus, which is Lada’s version of the seven-seat Dacia Logan MCV; the second-generation Sandero hatchback and the Logan sedan, which are sold in Russia as Renaults; and the Logan-based Nissan Almera. AvtoVAZ makes 930 B0-based cars on the line each day.