RUSSIA - What future can there be with LADA in Russia, read on to find out.

Former General Motors purchasing chief Bo Andersson faced a massive task when at the end of 2013 he was hired to turn around money-losing Russian car giant AvtoVAZ, parent company of the Lada car brand and a key part of the Renault-Nissan alliance. 

His job became far tougher a year later when the Russian economy stalled, which caused a big slump in car sales. Despite those challenges, Andersson is bullish about Lada’s future because of two key models that debut this year. 

He explained why in an interview with Automotive News Europe Correspondent Nick Gibbs.

What does XV mean in connection with Lada?

It stands for the X-ray [compact SUV] and the Vesta [compact sedan], our two new models coming later this year. It’s also Roman for 15, so we’re saying, “This is our year.” We have been trying to work on our pride in the company.

What effect will the X-ray and Vesta have on Lada?

In some regions we have 60 percent market share. Last year we had 4 percent market share in Moscow, 6 percent in St. Petersburg. I’m sure we will get back to 20 percent in Moscow and St. Petersburg with these new vehicles. Both are coming into segments that we’re not really in.

What are the X-ray’s rivals?

The Renault Sandero Stepway inside the family, and the Lifan X60 outside the family. Also the Kia Rio hatchback.

Are the Chinese your biggest competitors overall?

Long term yes. They’re going to be toughest for Lada because they are focusing on the regions where we are strong. The two that are doing best are Geely and Lifan.

How can they compete with you on price if they’re mostly not making in the country?

I can only guess it is a strategic decision.

Do you think they’re selling at a loss?

Their dealers get 150-200 days’ terms of payments. I think that’s a telling point. We have prepayments of 30 days.

You had a 3 percent operating loss last year but you aim to have a 6 percent operating profit next year. What is your main strategy to reach that?

The main thing is Lada volume, second is price discipline, third is growing the spare parts business, almost doubling it. The last piece is purchasing, which is perhaps the most painful.

How will you double spare parts sales?

We told our dealers we will pay them twice the per-hour repair tariff fee if they buy spare parts from us instead of others. Normally a company has 10 percent of revenue in its spare parts business. Our revenue is 5 billion euros, so our spare parts business should be 500 million. Today it’s 150 million.

What are the similarities between restructuring AvtoVAZ and the turn around you led at Russian commercial vehicle maker GAZ?

It’s been 10 times more difficult. [At GAZ] we laid off 50 percent of people, we raised prices and we stepped out of unprofitable businesses. Here we have taken out 17,000 people.

What is the capacity utilization at your Togliatti plant?

Overall we are at 70 percent. It was at 50 percent when I arrived, and I said we should run between 85 and 90 percent. To increase productivity we went from three shifts to two on the Granta/Kalina line. So we went from 40 jobs per hour to 54. Then we took out 1,500 people. For Lada we only take dealer orders. That means if we don’t have orders we don’t produce.

What is your local content?

For Lada brand it’s 81 percent. For the alliance it’s around 50 percent. We’re going to localize engines for the alliance [vehicles built in Togliatti] sometime this year -- a 1.6-liter gasoline. In Russia today it’s all about local content. If you sell in Russian rubles and most of your cost structure is in rubles you have a huge advantage. If you have 15 percent of cost in rubles and the rest in euros or dollars you’re dead.

How does fit Lada within the alliance’s brands?

We are just a contract manufacturer for the alliance and I like it that way. I don’t need to worry about what Renault is doing, Datsun is doing or Nissan is doing.

Will the Russian market bounce back?

Russia will always be one of the top 10 car markets in the world. You have a huge potential and a relatively bad transportation system.

Nick Gibbs

REPORT HERE