Facing massive layoffs, Russia's 'Detroit' feels the chill

McClatchy NewspapersOctober 8, 2009 

TOGLIATTI, Russia -- A chilly wind snapped at Vasily Kurikov's face at noontime Tuesday as he walked to the employment office to find a part-time job as a street cleaner.

He'd worked for 28 years at AvtoVAZ, Russia's biggest carmaker, but the factory has him on half-shifts and, like everyone else in town, he's heard that there are 27,600 job cuts coming. Looking at the people in front of him, many of them AvtoVAZ workers left to wander this city on the banks of the Volga River, Kurikov said that things could turn bad.

"Most of Togliatti works for AvtoVAZ," he said. Kurikov's eyes squinted as he continued: "If there are mass layoffs, then our labor unions must organize strikes, and we will come to the streets and speak about our problems."

The prospect of unrest among AvtoVAZ's 102,000 employees has set off alarm bells from Togliatti's city hall to the Kremlin, about 500 miles northwest.

The plight of AvtoVAZ hints at what many say is a crucial weakness of modern Russia: its outdated infrastructure and inefficient, Soviet-legacy companies.

The company produces the Lada, a cheap car originally based on the Fiat that became an emblem of the Soviet Union and is Russia's most popular automotive brand.

Observers have described Togliatti as "Detroit on the Volga," as the automaker grapples with financial difficulty not unlike Ford's, Chrysler's or General Motors', with workers facing layoffs or early retirements.

For Russia's leadership, the implications are profound. Although no one is predicting riots in Togliatti, any hint of trouble in the provinces is seen as an unacceptable challenge to the Kremlin's centralized, authoritarian power.

The prospect of life without a job at AvtoVAZ has left many dazed in the city of about 720,000 people. Once known as Stavropol on the Volga, it was renamed in 1964 for Italian Communist leader Palmiro Togliatti, whose last name is often transliterated here as Tolyatti.

Some workers whose hours have been slashed sit on park benches, their breath smelling of beer or vodka, and stare into space when asked how the layoffs might affect the city.

AvtoVAZ's problems were laid bare after the global financial crisis slammed Russia's economy. Only a year and a half ago, the consulting and financial services firm Ernst and Young predicted that Russia would be Europe's largest car market by 2012. The French carmaker Renault bought a quarter of AvtoVAZ for about $1 billion in 2008, and other Western companies were lining up to get a piece of the action.

Then the recession hit. An August report by an Ernst and Young analyst in Moscow noted predictions that the Russian auto market would be down 50 percent this year.

After producing about 900,000 vehicles last year, including kits sent overseas to be assembled, AvtoVAZ officials said they expect output to fall to about 350,000 in 2009.

Many observers have hinted at the possibility of a massive restructuring.

Taking a cleaver to the company, though, could lead to the sort of social upheaval that the Kremlin has sought to avoid at all costs. In December, riot police were sent 4,000 miles from Moscow to the Far East city of Vladivostok to break up protests against higher tariffs on imported cars.

When reports surfaced about layoffs this summer, and concern began to spread through Togliatti, the company's leadership released a statement carried by government media that said the reports were just rumors. In September, though, AvtoVAZ confirmed that its work force would be reduced from 102,000 to about 75,000.

Togliatti's employment office said that about 19,800 AvtoVaz workers will be employed in public works jobs, such as cleaning public squares, until November, a temporary measure to offset their lower wages.

"Of course it would be very bad if there are a lot of layoffs, the situation would get very bad in the city," said Andrei Petrovsky, who's worked as a welder at the plant for four years.

What does he think will happen? "The heads of the factory say a lot. They promise a lot," Petrovsky said, looking more worried the longer he spoke.

He thought to himself for a moment and then said, "Let me ask you a question, how are things in Detroit?"

There's already been one protest in Togliatti, bringing around 2,000 people to the streets in August, and another one, expected to be much bigger, is planned for this month.

There's a large population for demonstration organizers to draw from: AvtoVAZ employs about one in seven people in Togliatti, and more than one in five of its working-age population.

AvtoVAZ's reach is far greater than just the city -- one senior AvtoVAZ official recently estimated that 3 million jobs in Russia are tied to the company through a long line of affiliated firms or suppliers.

"That's why, I suppose, our government is paying very much attention to the developments over here," said Eduard Vaino, the company's vice president for government and shareholder relations.

Prime Minister Vladimir Putin last week threatened Renault that if it didn't quickly ante up more investment for AvtoVAZ, its shares would be diluted by the issuing of more stock, risking the value of its $1 billion investment. Putin then declared Monday that the government would never allow AvtoVAZ to collapse.

The company had record losses of $447 million during the first six months of the year, according to state media. It's already received more than $800 million in government support, and has been approved for an additional $400 million.

Despite the rhetorical bluster by Putin and others, critics say that Russia's leadership is largely at fault for not diversifying the economy and helping modernize companies such as AvtoVAZ. During the past decade or so of booming oil and gas exports that brought wealth and prestige, very little was done to revamp a nation still largely stuck in Soviet-era practices.

Other major car firms operate a web of cost-efficient, multinational suppliers, bringing the final parts together at assembly-line plants. AvtoVAZ, however, remains a massive city within a city. There are hundreds of acres with factories to smelt metal, produce plastic and manufacture tools. Until recently, AvtoVAZ oversaw about 100 school buildings and a hockey arena.

"We have a submarine over there," Vaino said Wednesday evening, gesturing out the window of his 22nd-floor office. "How it's related to car manufacturing, no one can say."

The company still oversees, among other things, an extensive bus transport system, a full-sized hospital, and a museum that features helicopters and, yes, a large submarine sitting in the middle of a field.

AvtoVAZ "was constructed in the Soviet era, and it was never meant to be competitive on the open market, much less the global open market," said Andrei Lyapin, a coordinator for the Interregional Trade Union of Automotive Workers in Togliatti. "Togliatti is clearly a bill that someone has to cover. It's much more than a business problem, it's a social problem."

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McClatchy Newspapers 2009

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