Russia's Detroit Blames Renault-Nissan For Its Decline

The Volga river city of Togliatti is the nearest there is to a Russian version of Detroit as the center of production for the market’s best-selling Lada brand. The city was hit hard when Russia's economy slowed, aggravated by a fall in global oil prices and Western sanctions over Russia's role in the Ukraine crisis.

Russian consumers responded to the slowdown by cutting their biggest item of discretionary spending, and for most people that meant putting off buying a new car; a body blow for a city where car making underpins the local economy. Thousands of staff at AvtoVAZ, the company that dominates the city about 1,000 km (600 miles) southeast of Moscow, lost their jobs, and a web of businesses that depend on the auto industry saw their revenues drop.

Residents share an opinion about who is to blame: Renault-Nissan and the recently departed head of AvtoVAZ, the Swedish national Bo Andersson.

"The company's foreign owners are doing nothing to protect the workers," local member of parliament Leonid Kalashnikov wrote in an election pamphlet. "It's not surprising that today Togliatti is on the very brink of a social explosion."

Renault-Nissan owns a combined 67 percent of the holding company that controls AvtoVAZ, while the state-owned company Rostec owns the remaining 33 percent.

Culture clash

Blaming foreigners for Russia's misfortune is a common theme under the rule of President Vladimir Putin. The Kremlin promotes the view that the economic crisis is in part a Western plot to punish Moscow for standing up to the U.S.

In Togliatti, a city of more than 700,000 named after a former Italian communist leader where the roads are filled with the boxy Lada saloons churned out from the AvtoVAZ plant, there is a more immediate reason to dislike foreign influence. Andersson, the CEO until he was removed last month, had been on a drive to weed out inefficient suppliers, in some cases giving the contracts instead to foreign firms. That program contributed to the shutdown of the biggest AvtoVAZ supplier, Avtovazagregat, and two AvtoVAZ subsidiaries, leading to thousands of lay-offs.

At the same time, Andersson was laying off staff at AvtoVAZ itself, a process that accelerated as sales of Lada cars plummeted. Sales last year were 40 percent lower than in 2013. In 2008, AvtoVAZ employed about 110,000 people, or around one in seven of Togliatti's population. By the end of February this year, the number was down to about 44,000, according to Sergei Zaitsev, an AvtoVAZ union boss who also sits on the company's board.

In a newspaper interview shortly before he was removed, Andersson said tough economic times required difficult decisions and AvtoVAZ shareholders had given him carte blanche to take the decisions he deemed necessary, including on layoffs.

The redundancies are standard Western corporate practice. But they collided with a different culture in Russia, one that views the auto industry as a source of national pride and tends to avoid job cuts in favor of cutting pay and working hours.

"AvtoVAZ is being wrecked more than anything by Bo Andersson and his henchmen, by the invaders," said Oleg, a jobless former AvtoVAZ employee who was standing in a line at a labor exchange in Togliatti last month. Yevgeny, a former procurement specialist who lost his job at AvtoVAZ, said foreign producers were wrecking AvtoVAZ so they could then take its market. "It's obviously sabotage," he said.

The two former AvtoVAZ workers declined to be identified by their full names because they did not want to jeopardize their future job prospects.

Andersson was replaced last month after Sergei Chemezov, a friend of Putin and AvtoVAZ's biggest Russian shareholder, accused the Swede of throwing workers "out into the street." The new AvtoVAZ boss, Frenchman Nicolas Maure, used to run Renault's Romanian business, where he says he was good at dealing with labor and that there was no social upheaval while he was there. He has not spelled out how he will deal with AvtoVAZ's problems.

Hardship

For the Russian workers laid off, life in Togliatti is hard. According to union representatives and former AvtoVAZ staff, some found low-paid work as night watchmen or taxi drivers, some were eking out the modest payoffs they were given when they were let go, others are surviving on loans.

Denis Brazhnikov used to work at Avtovazagregat, the parts supplier, until he was laid off last summer. Since then he has been looking for work with no success. He has to support his two school-age daughters, and pay off a loan he took out in better times to pay for a car and a refurbishment of his apartment. "Now my personal savings have run out," said Brazhnikov. "Once I've made the payment on the loan, that's it, I have no money."

Yet the hardship does not diminish the high regard in which people in Togliatti hold Putin. That stands in sharp contrast to their disdain for the automaker's foreign managers. "The nationalistic, patriotic, imperial sentiments hold sway," said Pyotr Zolotaryov, the boss of Unity, an independent trade union at AvtoVAZ. "If you're talking about Putin, people support him. They don't pay attention to their own impoverished existence."