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Auto Industry 1991-2000
In Soviet times, more than 5000 enterprises that were connected in one way or another with the manufacture of automobiles belonged to the structure of the Ministry of the Automobile Industry. Today nearly half of them are either bankrupt or have restructured their operations. But even those that have stayed afloat employ 140 000 people and annually produce and sell products worth $5 billion, or almost 2.5% of the GDP. Total production of all Russian auto factories is 1 million passengers cars and 200 000 trucks per year. Compared with Western companies, this is not very much -- annual turnover at, General Motors is $130 billion.
However, there are prospects for the domestic auto industry: more and more cars are being sold in our country, and production is correspondingly increasing, with annual growth around 10%. It is quite possible that even if the auto industry does not recover its former strength, within a few years it will be equal in strength to the primary sectors of the economy.

HISTORY: 1991-2000

The Russian automotive industry is unique. It produces cheap, obsolete, low-quality products whose export potential is close to zero. Nevertheless, events in the history of its privatization and subsequent redistribution have always made the front pages of newspapers. All because the Soviet-era dream of a private car is still a dream for the majority of our country's residents.

In February, the shareholders of AO KamAZ held their first meeting. Nikolai Bekh, head of the foundry division, was elected president. KamAZ was turned into a corporation in June 1990 by a decision of the government of the USSR: 38% of the shares became the property of the union, 13% became the property of Tatarstan, and the remaining stocks were put up for sale. On September 5, shares of AO KamAZ began to be sold to the labor collective; and on September 10, AvtoVAZ Bank opened a share tender for corporations; it was reviewed on December 12. The demand rate of 800 rubles a share was eight times higher than the face value and was approved as the sell rate. Two hundred and thirty enterprises and organizations that bought 2 million shares for 1.6 billion rubles became co-owners of KamAZ.

In November, on the basis of an agreement between 12 independent states and the Moscow government, a decision was made to set up the intergovernmental holding OAO Avtosel'khozmash Holding (ASM Holding), whose shareholders were enterprises in the automotive and agricultural machinery industries of the former USSR. Nikolai Pugin, Minister of the Automotive and Agricultural Machinery Industries, became head of the holding. In essence, it was an attempt to preserve the centralized system of the domestic auto industry. However, the holding was not able to preserve the main functions of the ministry. Today, it is involved in gathering statistical information on the industry and makes a living by renting space in the former Ministry of the Automotive Industry building.

The privatization of KamAZ gave the deputies of the Supreme Soviet of Tatarstan no rest; they insisted on verifying that the process of selling the enterprise's shares was in accordance with the republic's economic interests. At a meeting with KamAZ's president Nikolai Bekh, the parliamentarians insisted on obtaining the minutes of all of the enterprise's management meetings. Bekh refused, but they instructed administrative secretary Vyacheslav Durnev to show them the minutes of the general meetings of KamAZ's shareholders. Durnev later said that they had left him vulnerable, since he was personally responsible to the shareholders for confidentiality of the minutes.

The Moscow Joint-Stock Company (AMO) ZIL was registered on August 21. The staff of the company voted for privatization, under which they received 25% of the shares (preferred shares) free of charge and bought 15% of the ordinary shares at a 30% discount.

In October, Boris Yeltsin signed the decree "On the Particular Features of Privatization of the Volzhsky Car Factory Production Association."

In November, Yeltsin signed a decree on privatization of the GAZ production association, and AO GAZ was registered in December.

In December, the staff of the Ulyanovsk Car Factory (UAZ) received 25% of the shares of AO UAZ free of charge as a result of privatization, and 60% were supposed to be sold at auction. The first 10% of UAZ's shares were auctioned at the end of the year to AO Kapital. The company had been set up a few days before the start of the auction by 11 heads of UAZ's structural subdivisions, including general director Pavel Lezhankin. The regional property fund only approved the results of the first UAZ share auction six months later, after a special order from the Federal Property Fund.

AO AvtoVAZ was formed on January 5.

A controlling block of shares of AZLK (Lenin Komsomol Car Factory) Moskvich was secured as federal property by a decree of August 24.

In October, Boris Berezovsky, director of the VAZ dealer subsidiary LogoVAZ, and Aleksandr Voloshin, head of the firm Esta Corp set up AO All-Russian Auto Alliance (AVVA). The Alliance was organized around AvtoVAZ, which received 25% of the charter capital amounting to 10 billion rubles. LogoVAZ, the Swiss firm Forus, and the Federal Property Fund each got 15% of the shares. AO Kuibyshevneft' and the Incorporated Bank received 10% each, and the Samara administration and AvtoVAZ Bank received 5% each. The Alliance's founders announced the conditions for issuing an AO AvtoVAZ bonded loan on a project to build a plant for producing a "people's car" (now called the Kalina Project) with a repayment period to December 31, 1996. Boris Berezovsky was affirmed as AVVA's general director, and Esta Corp. became the general distributor for AVVA and traded in AvtoVAZ bonds. Later on, AVVA was connected with the activities of the lamentable Chara Bank, which invested a large portion of funds gathered from the population in Alliance shares. Several years later, Yuly Dubov, one of the participants in the project, wrote of these events in the book The Big Share, which became an instant bestseller.

In December, the Prime Minister of Tatarstan, Mukhammat Sabirov, and KamAZ general director Nikolai Bekh agreed on a transfer of ownership of the factory site to KamAZ in exchange for 20% of the charter capital as a compromise with the Tatarstan authorities.

The Russian State Antimonopoly Committee demanded that UAZ management stop sales of certain UAZ models at a special markup. The entire markup went into the account of AO Kapital.

According to State Committee for the Management of State Property (GKI) Order #1322 of December 13, 1993, GAZ's general director, Boris Vidyaev, should have conceded to Nikolai Pugin, president of ASM Holding. However, on December 20, GAZ's board of directors decided to keep Vidyaev in his post and asked GKI chairman Anatoly Chubais to rescind the order.

In December, applications began to be accepted for a check auction of shares of the Gorky Car Factory. Initially, it had been proposed to start the auction on November 12, and applications were supposed to be accepted only in Nizhny Novgorod region and Saransk. In fact, GAZ tried to sell its shares to loyal management of allied industries. However, GKI managed to uphold the sale of GAZ shares at an All-Russian auction. Fifty percent of the charter capital was put up for sale instead of 30% as the plant's administration had proposed. Then, as a result of a reappraisal of GAZ's property (mainly social and cultural amenities), the block of shares increased to 50.7%.

The auction was subsequently declared invalid. The State Committee set up after governor Boris Nemtsov petitioned the government with a letter about irregularities during the auction sent documents to the Russian prosecutor's office. It was established that GAZ's administration had used state funds to buy up its own shares. All applications were recalled except the application from the firm GAZ Invest, which made no secret of the fact that it had acted on GAZ's behalf. This led to suggestions that all the ballyhoo surrounding the auction of GAZ shares had been initiated by the auto giant's management in order to keep outside shareholders out of the factory.

In January, Boris Nemtsov published an open letter to the auto giant's shareholders in the Nizhny Novgorod press. In the letter, Nemtsov complained about the actions of current general director Boris Vidyaev, noting that his leadership style did not make allowance for the new economic requirements. The first meeting of the shareholders of AO GAZ was held in April. The shareholders reached a compromise regarding the dispute over the post of general director of the company: Boris Vidyaev retained his post, and Nikolai Pugin took up the post of president and chairman of the board of directors, a post that had been especially created for him.

The president issued a draft of a decree providing for an investment tender for the controlling block of shares of AO Moskvich.

On April 29, shareholders of AMO ZIL held their first meeting of. The names of 190 000 shareowners were entered in the register. The largest shareholder turned out to be the Mikrodin trading house, whose president and chairman of the board of directors was Aleksandr Efanov and whose chairman of the governing board was Dmitry Zelenin.

According to plant representatives, the blocks of shares concentrated in one set of hands were no more than 10%. However, together with affiliated structures, Mikrodin owned about 24% of ZIL's shares. At the meeting, Aleksandr Vladislavlev, who at the time was head of the political council of Otechestvo (Fatherland - a political party), was elected chairman of the board of directors of AO ZIL. Later, at a meeting of AMO ZIL's board of directors, a financial recovery program for the enterprise was approved, which meant to turn ZIL into a major financial and industrial group (FIG). Valery Saikin was elected president and general director of the AMO, and Evgeny Brakov, the former head of the factory and rival of Boris Yeltsin in elections to the Supreme Soviet of the USSR, was moved to the post of first vice president-he was faced with the task of creating the FIG.

On October 19, a third share issue of 50 million shares was approved at a meeting of the shareholders of KamAZ. At the same time there began consolidation of the shares of previous issues at a 10 : 1 ratio; there remained slightly more than 50 million shares. As it provided later stocks from the additional issue had gradually been transferred to the companies KKR and Cummings in exchange for investments. As a result, the foreigners had a blocking package of shares at their disposal.

On April 13, Aleksandr Efanov, president and chairman of the board of directors of Mikrodin, was elected president and general director of AMO ZIL.

At a meeting of AvtoVAZ's shareholders on May 27, a new person appeared in the ranks of the company's senior management-the head of the economics and finance department, Erkin Norov. The factory's owners commissioned him to find out why the flourishing company had losses of 53 billion rubles.

At a meeting of the shareholders of AO Moskvich in May, general director Yury Borodin announced that the enterprise was in a crisis situation and would continue to cut production. The plant's assembly line had stood idle for a total of 40 days since the beginning of 1995.

In July, the GKI of Tatarstan prohibited KamAZ from selling real estate belonging to it. However, from the time the factory site had been transferred to a joint-stock company, the enterprise had succeeded in concluding 92 real estate sale contracts with a total value of about 100 billion rubles. More than 40 businesses and enterprises located on the factory site became hostages of the GKI's decision. In November, the mayor of Naberezhnye Chelny sanctioned an OMON (riot squad) operation to evict the businessmen from occupied premises.

In December, Nikolai Bekh set up an operational management group (OMG) at KamAZ, one of whose tasks was reorganization of the enterprise's production and assembly infrastructure. A large part of the general director's authority was transferred to the group, which was headed by first deputy general director Yury Borisov. Marketing and sales director Oleg Belonenko, research and development director Igor Kostin, executive director Dmitry Martidi, and deputy head of the legal department Ildar Khalikov were also members of the group. Shortly after, Russian President Boris Yeltsin signed the decree "On State Support for Restructuring and Development of AO KamAZ Enterprises."

Vladimir Kadannikov took up the post of first vice-premier of Russia. The board of directors of Avto VAZ appointed Aleksandr Nikolaev to the post of the company's general director and president. Prior to this, he had been head of the production operations department.

An extraordinary meeting of the shareholders of AMO ZIL was supposed to have been held on March 21 at the request of the investment and finance company Dinamika (managed by Il'ya Aleksandrov), which was part of the Mikrodin structure. The plan was to elect a new board of directors and general director and choose an audit committee. Aleksandr Efanov, Valentin Morozov (technical director of ZIL), Viktor Novikov, Yury Luzhkov, Mikrodin representatives, and old ZIL managers appeared on the list of 30 candidates for the 15 positions on the board of directors. However, the meeting was never held due to lack of a quorum: owners of only 40% of the shares were registered.

Aleksandr Efanov was elected general director at a rescheduled extraordinary meeting of ZIL shareholders. Supporters of the factory's chairman of the board of directors, Valery Saikin, walked out, declaring that the decisions of the meeting had no legal force because of procedural violations. The factory's administration also refused to recognize Efanov's authority. The Moscow City Court of Arbitration later declared the meeting illegal and all of its decisions invalid.

In August, the government of Moscow reached an understanding with the management of the Interros Group on buying a block of ZIL shares belonging to the Mikrodin group from it for $6 million. Mayor Yury Luzhkov and ONEKSIM Bank president Vladimir Potanin signed the corresponding agreement.

On August 9, Vladimir Kadannikov resigned as first vice-premier of the Russian government. In October, AvtoVAZ's board of directors approved a repayment schedule for the enterprise's arrears to budgets of all levels and to extrabudgetary funds. AvtoVAZ's total budgetary arrears had reached 10 trillion rubles.

On November 16, at an extraordinary meeting of AvtoVAZ's shareholders, Vladimir Kadannikov was elected to the company's board of directors and became president of the newly elected board at its first meeting a few hours later.

Several days later, at a meeting of the payments and settlements committee chaired by First Vice-Premier Vladimir Potanin, a decision was made to initiate bankruptcy proceedings for AvtoVAZ. Managers of AvtoVAZ did not attend the meeting. The sequel to the story came in December at a meeting of Vladimir Potanin, head of the Federal Bankrupcty Agency (FBA) Petr Mostovoi, and head of GKI Alfred Kokh with Vladimir Kadannikov, Aleksei Nikolaev, and governor of Samara Konstantin Titov. According to a decision made at the meeting, within a period of two months, Management of AvtoVAZ would convene a meeting of the shareholders, which was supposed to approve a supplementary share issue aimed at paying the company's debts. Provision was made for transferring the rights to place the supplementary share issue to the Russian Federal Property Fund and for deferring repayment of budgetary arrears. The government reserved the right to sell the supplementary issue as a single block to a strategic investor.

After a prolonged stoppage in mid-September, the main conveyor at AO Moskvich started operating; however, as the factory's general director Yury Borodin declared, the enterprise would be able to operate stably only on the assumption of help from the governments of Russia and Moscow. Borodin was soon forced to appeal to the Moscow legislature for real help: at a meeting of the Interim Extraordinary Commission (IEC), a bankruptcy suit was declared against the Moskvich plant. The deputies promised support, but in November, Yury Borodin was removed from his post.

Ruben Asatryan, the plant's technical director, was chosen as the new general director. Reshuffling of Moskvich's senior management took place a week after loud announcements of new joint projects with the French company Renault and a week before the court examination of the bankruptcy case. In the end, the FBA considered it advisable to liquidate Moskvich and asked the court to appoint external management at the factory. The bankruptcy procedure was suspended. Moscow Mayor Yury Luzhkov, who was promised 60% of the federally owned Moskvich shares, decided to take over the care of Moskvich.

In February, the Russian government considered two draft presidential decrees concerning a transfer of ownership of the federal block of Moskvich shares to the Moscow government. The first had been worked out by the Moscow authorities; it provided for a transfer of ownership of 60% of the factory's shares to the city; 25.5% of the shares were held as federal property, and 34.5% were earmarked for sale by investment tender in accordance with AO Moskvich's privatization plan. The second draft bill had been worked out by the GKI. It offered the Moscow authorities a controlling block of the factory's shares to offset the city's federal budgetary arrears for fulfilling the functions of the Russia's capital. In addition, the draft bill specified repayment of the factory's federal budgetary arrears by the Moscow government and the sale of 34.5% of its shares by investment tender. In April, Boris Yeltsin signed a decree on the transfer of a controlling block of AO Moskvich's federally owned shares (59.07%) to the Moscow government.

At a meeting of AvtoVAZ's board of directors chaired by Vladimir Kadannikov held in April, a decision was made to recommend to shareholders that the Volzhsky Car Factory be separated from AvtoVAZ with the status of an independent company, AOOT VAZ. All production facilities were supposed to be transferred to it. The AvtoVAZ scientific and technical center and the dealer network would remain at AvtoBAZ. It was proposed to raise the charter capital of the new company by conversion of 19.81% of AvtoVAZ's shares, which were needed to buy out the Automobile Finance Corporation (AFC). However, at a meeting of AvtoVAZ's shareholders on May 31, AvtoVAZ's shareholders abandoned the idea of moving assets to a new company in exchange for the government's promise not to raise the question of the factory's bankruptcy.

In July, former AvtoVAZ president Nikolai Bekh quit as chairman of the company's board of directors. Ravil' Muratov, the first vice-premier of Tatarstan, was elected the new chairman of the board. In September, Yury Luzhkov introduced Bekh as his advisor on industrial policy. According to expert opinion, he was being groomed for a place as head of a Moscow automotive holding that would have united ZIL and Moskvich; but this holding was never created.

In December, the Moscow government, AO Moskvich, and the Russian Credit Bank signed an agreement on strategic cooperation. The bank promised to grant credits of 500 billion rubles to the department of scientific and industrial policy. The department directed part of these funds toward producing Moskviches with Renault engines. The bank also became an investor and financial consultant for the enterprise's recovery program.

An additional share issue was approved at a meeting of AMO ZIL shareholders. It was proposed to use part of the stocks to pay off creditors, namely, commercial banks and the Moscow and Russian governments.

In January, negotiations on KamAZ's fate were held at the London headquarters of the European Bank for Reconstruction and Development (EBRD), one of KamAZ's largest creditors. The interests of Russian creditor banks (including Vneshtorgbank, Vneshekonombank, Sberbank, and Toko Bank) were respresented by Vneshtorgbank's president, Dmitry Tulin. KamAZ was represented by chairman of the board of directors Ravil' Muratov. It was decided to carry out an additional share issue, which would result in 75% of its capital being concentrated in the hands of the governments of Tatarstan and Russia and the creditor banks.

AMO ZIL's supervisory board approved an additional share issue of 200 million rubles with a face value of 1000 rubles per share. The necessary documents for registering the issue prospectus were sent to the Federal Securities Commission (FSC) on February 18. The issue was supposed to amount to 8% of the charter capital. The Moscow government, which by then owned 53% of the shares, immediately gave agreement in principle to buy part of the securities.

By a decision of the shareholders, Nikolai Bekh, the former head of KamAZ, became a member of ZIL's supervisory board.

The Russian government approved a decision to restructure AO KamAZ's federal budgetary arrears. Economics Minister Andrei Shapoval'yants was elected chairman of the company's board of directors. In September, he decided to hold a competition for the post of head of AO KamAZ.

On December 22, Anatoly Smirnov was dismissed from the post of chairman of the board of UAZ by four votes in favor on the initiative of three of UAZ's board members (the remaining six board members did not take part in the vote).

On January 12, Anatoly Chuvashlov, chairman of UAZ's union committee, was elected chairman of UAZ's board of directors at a board meeting. The same day, Anatoly Smirnov filed a suit in court. In March, Smirnov was reinstated in his post by a decision of the Zasviyazh district court of Ulyanovsk.

At a meeting in February with Vladimir Putin, Moscow Mayor Yury Luzhkov was unable to reach an agreement on transferring a controlling block of AO Moskvich shares from federal property to the Moscow government. This jeopardized the city government's commitments to transfer Moskvich's production facilities to the charter capital of AO Avtoframos, a joint venture of the Moscow government and Renault. Without the federal block of shares, the Moscow government's share in Moskvich's charter capital would be only 10%. After the unsuccessful meeting, rumors about Moskvich's impending bankruptcy appeared; however, in April, Vice-Premier Viktor Khristenko denied them. He claimed that a decision had been made to restructure Moskvich's budgetary arrears at a meeting of the government's budget committee.

In June, Ivan Kostin, KamAZ's general director, announced that the EBRD had agreed to a restructuring of the auto plant's debts to it ($141 million with penalties and fines on principal of $100 million) in a share offset.

In July, Vice-premier Il'ya Klebanov was offered the position of head of KamAZ's board of directors. The president of Tatarstan, Mintimir Shaimiev, discussed his candidacy with Prime Minister Mikhail Kas'yanov, and it suited both sides. In August, the members of KamAZ's board of directors unanimously approved the bureaucrat's candidacy. Il'ya Klebanov joined the company's board of directors as a representative of the state, which owned the largest block of the enterprise's shares (35.8%).

After a meeting in August with Yury Luzhkov, Russian Vice-Premier Aleksei Kudrin announced that very shortly, the federal government was prepared to transfer ownership of 59% of OAO Moskvich's shares to the Moscow government.

In August, Ruspromavto, a subsidiary company of Oleg Deripaska's Siberian Aluminum group, acquired slightly less than a 20% block of shares of the Pavlovo Bus Factory (PAZ). In September, Siberian Aluminum began actively buying up shares of the Gorky Car Factory.

In October, still another metallurgist showed an interest in the auto industry. This was Aleksei Mordashov, general director of OAO Severstal. Severstal-Invest, a Severstal subsidiary, became the largest shareholder in the Ulyanovsk Car Factory (UAZ) after buying about 20% of its shares from the Rusinvest company. Thus, Severstal structures managed to consolidate a controlling block of UAZ's shares.

Representatives of the Siberian Aluminum group occupied six seats on the board of directors at an extraordinary meeting of PAZ shareholders: general director of Ruspromavto Egor Andreev, executive director of Russian Aluminum Viktor Belyaev, key Siberian Aluminum (Sibal) specialist Aleksandr Bobrov, Sibal department manager Andrei Konstantinov, and Sibal department heads Elena Mukhareva and Ol'ga Shuvalov. In addition to the Sibal group, the head of the Pavlovo city administration, Viktor Kurenkov, the general director of AO Pavlovo Bus, Sergei Zanozin, and PAZ's director of finance and economics, Andrei Vasil'ev, were also on the board.

In November, five people from the management of the Siberian Aluminum group joined GAZ's governing board. Sibal vice-president Viktor Belyaev became general director of GAZ. Siberian Aluminum announced that it owned a block of 25% plus one share.

by Roman Zhuk


The modern history of the domestic auto industry is not as rich in great events as, for example, the history of the primary industries. Privatization of the industry turned managers and their financial consultants into principal shareholders of major factories. Their main objective was to keep outsiders out of their enterprises. Things continued this way until the middle of last year.

Aluminum Intervention
In the middle of last year (2000), head of the Siberian Aluminum (Sibal) group Oleg Deripaska, who by that time had dispersed the main aluminum business among Sibneft shareholders, became interested in auto industry assets. Sibal's, or more precisely, its subsidiary Ruspromavto's first major acquisition was the Pavlovo Bus Factory (PAZ, city of Pavlovo, Nizhny Novgorod region). According to unofficial information, Ruspromavto acquired about 20% of PAZ's shares directly from the MDM Group. Other Siberian Aluminum structures had consolidated several other small blocks that together with Rusavtoprom's block constituted a controlling block of PAZ shares.

However, Oleg Deripaska's main acquisition was the Gorky Car Factory (GAZ), where share consolidation began at almost the same time as the purchase of PAZ. The enterprise's management tried to put up resistance to Sibal and also began buying back its shares. It should be noted that GAZ's managers under the leadership of president Nikolai Pugin had something to lose. A significant part of GAZ's output was sold by deep-discount barter schemes through allied companies affiliated with the enterprise's management. According to estimates, Nikolai Pugin personally controlled up to 30% of GAZ's finance flows, or about $250-300 million annually.

Be that as it may, the resistance of the Nizhny Novgorod group broke down, and to all intents and purposes, the construction of Oleg Deripaska's new engineering holding began. Today, Ruspromavto controls the assets of GAZ, PAZ, the Likinsky Bus Factory (LiAZ), the Golytsino Bus Factory (GolAZ), the Kurgansky Bus Factory (KAZ), the Yaroslavl Motor Works (YaMZ), the Yaroslavl Diesel Equipment Plant (YaZDA), the Yaroslavl Fuel Equipment Plant (YaZTA), the Kashan Car Assembly Plant (KanAZ), and AO Volzhsky Motors. By some estimates, their combined annual turnover exceeds $1.8 billion. These finance flows are almost wholly controlled by Oleg Deripaska's team.

Sibal representatives have declined to confirm control over one or another enterprise. Their statements come down to saying that Ruspromavto owns no more than 20% of the capital of the majority of factories and that the factories are run by managers who have left the group and moved to the factories themselves, rather than by Sibal employees. Today, however, statements like these have one objective, which is to avoid unnecessary problems with the Antimonopoly Ministry.

Ruspromavto is currently negotiating to acquire AO Ural Automobile Plant (UralAZ), to which the fixed assets of UralAZ were moved. The parent factory is under outside control; nevertheless, the board of directors has approved the sale of 75% minus one share to the newly created AO against repayment of credit indebtedness. According to an agreement signed with the governor of Chelyabinsk, Petr Suminy, Sibal head Oleg Deripaska has guaranteed the group's participation in a sale tender of AO Ural Automobile Plant (UralAZ) shares, and if it wins, he has promised to invest 500 million rubles in the enterprise.

Sibal's acquisition of the Minsk Car Factory (MAZ) also cannot be ruled out, if it becomes a corporation, of course. Negotiations to this effect are underway with Belarussian president Aleksandr Lukashenko. As Sibal representatives have noted, Lukashenko's victory in the recent presidential elections should "give new momentum to this process."

Information has recently appeared about Sibal's interest in the capital's Moskvich car factory. According to Kommersant's information, Oleg Deripaska has been discussing this with representatives of the Ministry of Property and Moscow Mayor Yury Luzhkov. The situation is complicated by the fact that 59% of Moskvich's shares are in the Russian Fund for Federal Property (RFFP), and debts from $150 million in Western credits granted against guarantees of the government of the USSR to build an engine factory are hanging over Moskvich itself. The RFFP is prepared to transfer a controlling block of the factory's shares only on condition that the debt is repaid.

The federal authorities have proposed to transfer Moskvich shares to Moscow against repayment of the city's federal budget arrears for fulfilling its functions as the capital. However, a recent appraisal of the enterprise's fixed assets showed that if the debt is taken into account, its value is close to zero.

Whatever the scale of Sibal's plans, it is not the only major player on the market. There are also at least three other auto industry groups.

Volga Sweep
The first of these groups is AvtoVAZ, whose turnover surpasses all of Ruspromavto's enterprises taken together. However, as is the case with Sibal, the factory is controlled by a small group of individuals consisting of senior managers led by the chairman of AvtoVAZ's board of directors, Vladimir Kadannikov. At one time, entrepreneurBoris Berezovsky played a leading role in running the auto giant (primarily its finances and sales). However, Kadannikov now claims that Berezovsky no longer has any part in AvtoVAZ.

Today, the structure of AvtoVAZ's equity capital looks like this. The factory's largest shareholder, the All-Russian Auto Alliance (AVVA), owns 33.32% of its shares, while AvtoVAZ itself owns about 80% of the Alliance's shares. Another large block of the auto giant's shares belongs to the central office of the Automobile Finance Corporation (AFC), 49% of which was also controlled by AvtoVAZ. AVVA owns 10%, and the Swiss firm Forus Sevices S.A. owns15%; another 26% of AFC's capital is owned by the Fit company founded by seven individuals: Vladimir Kadannikov; head of AvtoVAZ's department of marketing, sales, and servicing Aleksandr Zibarev; head of the production operations department Nikolai Lyachenkov; president and general director Aleksei Nikolaev; head of the department of finance and economics Erkin Norov; head of the development department Konstantin Sakharov; and head of the personnel department Yury Stepanov. In fact, these people control the largest car factory in Russia and one of the largest in the world, with an annual turnover of more than $2 billion.

It should be added that AvtoVAZ has plans to create a car assembly holding. According to Kommersant's information, VAZ's "generals" have managed to acquire a share in the capital of the SOK Group of companies, a long-time partner of AvtoVAZ, starting with deliveries of components to VAZ. Today, SOK controls the RosLada assembly plant (Syzran) and AO Izhmash Avto, a subsidiary of the Izhmash holding. The assembly of VAZ-2106 and 21093 cars from VAZ components was set up long ago at RosLada, and an agreement was recently signed with Izhmash Avto to transfer the production of rear-wheel-drive AvtoVAZ models, which are supposed to give way to cars of the "tenth" family and the "Kalina" on the assembly lines, to this enterprise. It is also worth remembering the Serpukhov Car Factory (SeAZ), an AvtoVAZ subsidiary that produces about 16 000 Oka economy cars per year.

In addition, AvtoVAZ has recently been eyeing the most modern auto industry enterprise in the former Soviet Union, the Taganrog Car Factory (TagAZ), which is controlled by the Doninvest finance and industrial group of Rostov. Today, Hyundai cars are assembled under license at TagAZ's facilities. VAZ also hopes that production of its own cars can be set up at TagAZ in the future. However, at present, nothing is known about any negotiations on this subject. However, if the plans of AvtoVAZ's owners are completely fulfilled, the company's turnover may increase one and a half to two times within several years.

Steel Off-Road Vehicles
AO Severstal, headed by Aleksei Mordashov, also tried to form a group. The metallurgists established control over the Ulyanovsk Car Factory (UAZ) and the Zavolzhsky Engine Plant (ZMZ) at the beginning of this year. However, there has been no noticeable improvement in UAZ's operations so far. Furthermore, after Severstal abandoned plans to buy AO Volzhsky Motors, which was connected with the UAZ processing chain, and bought the Zavolzhsky Engine Plant of Nizhny Novgorod, which was traditionally considered GAZ's supplier, Mordashov's relations with governor of Ulyanovsk Vladimir Shamanov took a sharp turn for the worse. According to the local media, the governor hatched plans to oust Severstal from UAZ and transfer control of the company to the regional administration. However that may be, Severstal's work at UAZ could not be called a successful experiment. About a month before, the company even had to replace almost the entire team of managers that had been assigned to UAZ.

Trucks Make Capital of Economy Cars
Finally, the last major player in the domestic auto industry is AO KamAZ. The economy car factory belonging to the structure of the production association alone produces and sells approximately $70 million worth of Oka cars annually. Admittedly, as a whole, KamAZ's turnover of around $500 million annually is relatively modest.

This is essentially a state enterprise, since the governments of Russia and Tatarstan are KamAZ's largest shareholders. However, according to Kommersant's information, KamAZ's finance flows are actually concentrated in the hands of a group of managers led by general director Ivan Kostin. In all fairness, it should be noted that no strategic decisions are made at the factory without consultations with Tatarstan's president Mintimir Shaimiev, who in turn takes the plans of the enterprise's management to the Russian government and regularly places bureaucrats on KamAZ's board of directors.

by Roman Zhuk


A factory that makes cars is only the last link in the large car-industry production chain. Today, the main objective of car-factory owners is to include in their industrial holdings suppliers of car components, which account for a large part of their planned investments.
At first glance, this objective seems simple: a huge number of enterprises would be happy to deliver their products to VAZ, GAZ, or even UAZ. The problem is, few of them can guarantee a standard of quality that corresponds to today's realities. Western companies carrying out assembly projects in Russia were the first to run into this problem. Thus, Guy Barras, head of the Avtoframos joint venture, once said that of 90 component manufacturers that aspired to be suppliers to Avtoframos, no more than 10 met Renault's minimum requirements. However, component quality is a headache for all Russian car factories without exception. Today, low cost compensates owners of "our models" their monthly visits to a service station. However, because of the decreasing profitability of production, car factories are being forced to increase the prices of their products. Obviously, this can only continue to a certain limit, beyond which a potential customer will simply buy a foreign model.

Most importantly, Russian cars today lack the modern, reliable, economical engines needed for full-fledged market competition. Without exception, all domestic engines currently meet Euro-1 or at best Euro-2 environmental standards for toxic emissions, and only if they are in absolutely perfect condition. For this reason even the most perspective models that will go into production in the next five years will not be accepted in Europe. Moreover, with such low-powered and uneconomical engines Russian cars can lose even their domestic buyers.

This is the most likely reason why AvtoVAZ, GAZ, and UAZ are preoccupied with projects to produce diesel engines for passenger cars. These engines are considerably more economical than gasoline engines, and diesel fuel is cheaper than any gasoline.

At GAZ, which is part of the Ruspromavto holding, Yaroslavl Motor Works (YaMZ), along with its component suppliers, and Volga Motors form the base for implementing their "diesel project." In a recent interview with Kommersant, Dmitry Strezhnev, head of Ruspromavto, estimated expenditures on developing a new diesel engine and organizing its mass production at $200 million.

With the support of its owner Severstal, UAZ is planning to launch the production of diesel engines at the Zavolzhsky Engine Plant (ZMZ), which is also controlled by the metallurgists and which already has experience in producing Austrian Steyr diesel engines under license. Severstal recently signed an agreement with AvtoVAZ, under which there are plans to set up diesel engine production of about 220 000 per year at ZMZ for the Volzhsky Car Factory as well.

In March of this year, AvtoVAZ managers also announced their own plans to develop and produce new series of diesel engines, including generic diesel engines for GAZ and UAZ cars as well. At the time, Vladimir Kadannikov, chairman of the board of AvtoVAZ, estimated the project cost at $1.3 billion, of which AvtoVAZ was prepared to invest about $500 million. According to some sources of information, Barnaultransmash in the Altai region, which today supplies about 3000 engines annually to Togliatti for diesel "fours," may become the site of VAZ's investments. This project is especially topical in light of plans to produce a new Niva that will be on the assembly lines by next year.

To a considerable extent, domestic car manufacturers are confounded by the production of modern gasoline engines. At the beginning of the year, rumors appeared in the industry that the Ufimsky Engine-Building Production Association (UMPO) was planning to launch production of six-cylinder engines at the Moskvich factory. The car factory owed UMPO for previously delivered engines, and UMPO had allegedly made a proposal to Moskvich to organize output of its prospective designs at the factory's idle facilities against repayment of this debt. Factory representatives declined to comment officially on this information, but a couple of months before, sources in the car factory's management had indirectly confirmed this version after claiming that Moskvich was ready to start production of the new V-6 engines by the end of March. However, Moskvich managers did not clarify whether this was their own design or an outside order.

It is not inconceivable that Sibal was behind the engine project at Moskvich, since it needed a powerful new engine for passenger car production at GAZ. It is no secret that the production of the Zavolzhsky Engine Plant (for example, the ZMZ-406 injection engine, particularly the Volga series of modifications) provoked a mass of unfavorable criticism from GAZ. The fact that ZMZ, which was controlled by Severstal, periodically interrupted deliveries of engines to GAZ because of its debts to engine builders just added to the problem.

Then there was other information on Moskvich's subsequent development. According to Kommersant's information, if Moskvich joined the Sibal Group, the factory would be involved exclusively in assembly production. At the time, GAZ itself was concentrating on production of light trucks and minibuses, as well as components for existing and future passenger car models. According to some sources, Sibal head Oleg Deripaska discussed this option with Moscow Mayor Yury Luzhkov, who agreed to the proposed plan. It is not impossible that GAZ facilities that have been freed up from Volga production will be attractive to present-day component manufacturers with patents on various components.

The problem facing car manufacturers of developing cars at levels of technical sophistication, comfort, and design corresponding to Western engineering is only slightly less acute. Today, only AvtoVAZ has at its disposal a vigorous science and technology center (STC) capable of working simultaneously on a number of new designs. However, according to a development plan for the auto industry prepared by VAZ specialists and presented at a meeting of car manufacturers with Vladimir Putin, the Togliatti engineers are prepared to design new off-road vehicles for other factories. GAZ representatives have already announced plans for collaborating with AvtoVAZ's science and technology center on the design of a new front-wheel-drive car. Just the other day, it was learned that AvtoVAZ has started to design a new off-road vehicle for the Ulyanovsk Car Factory. UAZ management estimates put total expenditures on design and preparation of this vehicle for production at $1 billion.

All the Article in Russian as of Oct. 02, 2001

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