Avtovaz, Largest Carmaker in Russia, Considers Laying Off 27,000 Workers

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July 29, 2009

Avtovaz, Largest Carmaker in Russia, Considers Laying Off 27,000 Workers

By ANDREW E. KRAMER

MOSCOW — Executives at Avtovaz, the largest Russian carmaker, are reportedly considering laying off about 27,000 employees to improve performance at a factory that has been clobbered by the sharp drop in demand for cars.

The factory, where Lada cars are built, is one of the least efficient in the industry, a behemoth built by the Soviets that was never fully reformed and had never, until now, contemplated laying off considerable numbers of its huge work force.

The layoff plan was reported Tuesday by the Interfax news agency, which cited comments made by a vice president, Igor Komarov, at a meeting with regional officials. The report named a precise number of cuts: 27,691 jobs. The radio station Echo of Moscow cited a company representative saying the cuts were only a contingency if sales did not pick up; the company’s press office was not answering calls Tuesday.

Any big cuts in Avtovaz’s payroll of 103,000 would surely be a milestone in the country’s handling of the collapse in manufacturing output this year; the government has been reluctant to allow factory owners to lay off workers over concern for social unrest. Avtovaz, one of the biggest and most troubled employers, was a test case.

Steel mills, tractor plants, mines and construction sites have been idled across Russia and unemployment is rising.

In June, Prime Minister Vladimir V. Putin was compelled to intervene after unemployed cement workers in Pikalyovo, near St. Petersburg, blocked a highway in protest. Pikalyovo is far smaller than the Volga River town of Tolyatti, where Avtovaz is based.

For years, payroll reductions there had been resisted more firmly than reform in Detroit. Fearing street protests by autoworkers in Tolyatti if large numbers were laid off, the government propped up Avtovaz with a $750 million interest-free loan.

Andrei A. Lyapin, a coordinator with the Interregional Trade Union of Automotive Workers, said by telephone from Tolyatti that the layoffs appeared a first step in more sweeping changes at the factory, including a possible bankruptcy.

“They don’t see an exit,” he said. The suggestion of layoffs, he said, followed months of unsuccessful efforts to revive demand for Ladas and reflected deep and perhaps terminal problems. The union is planning a street protest on Aug. 6.

A business that was barely getting by became untenable last year as demand for cars plunged. By January, Avtovaz had 120,000 Ladas in storage; production was curbed drastically to a target of 332,000 units in 2009 at a factory meant to produce a million cars a year.

Even this may be optimistic. In the first six months of the year, the plant built and sold 140,000 cars and also sold an additional 40,000 from storage, according to VTB, a Moscow bank.

Reports in the financial press had telegraphed the coming turmoil. Vedomosti, a Moscow business newspaper, ran an editorial this month saying the plant no longer had the confidence of senior officials in the Russian government and that there were “almost no advocates left for artificially prolonging the life of Avtovaz.”

The newspaper suggested prospects of social unrest had been played up by local officials and factory managers eager for subsidies. It recommended that the authorities bankrupt the company and use Tolyatti as a model city for supporting small and medium-size business to absorb unemployed workers.

Also, the Vedomosti report said, the plant has a future in spare parts: Russians now drive about 13.6 million Ladas, meaning about 33 percent of all cars in Russia are Ladas.