AvtoVAZ Suffers Significant Fall in Russian Market Share, Plans to Fight Back with Quality Drive
Renault faces a difficult dilemma in its bid to take control of AvtoVAZ as Lada's market share continues to plummet in Russia.
IHS Global Insight Perspective
The Lada brand is suffering a significant decline in market share in Russia, with fears that increasingly sophisticated consumers are abandoning the domestic brand.
The Renault-Nissan alliance is still in the process of working towards a full takeover of the brand and is gradually beginning to bring on stream new AvtoVAZ products that have been developed with Renault's help, but the progress in this regard has been glacial. However, AvtoVAZ's CEO says that the company is embarking on a major quality improvement drive that will boost perceptions of the brand.
With an almost 10% fall in market share in just over a year, AvtoVAZ's Lada brand is struggling to retain customer loyalty in its domestic market, which generates more than 90% of its overall sales. The brand hardly has a glowing reputation in Russia and Renault-Nissan must act quickly to improve quality and accelerate its new model development programme.
AvtoVAZ's Lada brand is currently experiencing an accelerated decline in market share in its domestic heartland as it struggles to compete with the increasingly competitive offerings from foreign OEMs. According to a Bloomberg report, the company is facing difficulties in persuading increasingly sophisticated Russian consumers to stay loyal to the brand, which is struggling with its Communist-era associations and hopelessly outmoded model line-up. According to IHS Automotive's data, the brand's domestic market share will fall to 20% in 2013 from almost 30% as recently as 2010. The latest data from the Association of European Businesses (AEB) paint an equally bleak picture of the Lada brand's performance in Russia in the first few months of 2012. The company posted a decline in sales of 14% year-on-year (y/y) to just under 160,000 units in the first four months of this year, while during the same period the overall Russian light-vehicle market posted growth of 18% overall. The company recently introduced a mildly reworked version of the Kalina B-segment model in the form of the Granta. However, a further de-contented version of an eight-year-old design is not the model to generate renewed customer interest in the brand. Despite Renault having taken a 25% stake in AvtoVAZ as far back as March 2008, progress towards introducing new Lada models that have been developed with the help of Renault using Renault vehicle technology has been glacially slow. Only now, more than four years after the initial stake purchase, is AvtoVAZ ready to launch its first model developed on Renault's "B0" platform in the shape of the Largus light commercial vehicle (LCV) and multi-purpose vehicle (MPV). The company is planning to develop a new range of Renault-, Lada-, and Nissan-badged models specifically for the Russian market, but these will only be introduced from 2014.
However, Renault has a plan to lure back sceptical Russian customers to the AvtoVAZ brand with a renewed focus on improved quality, an area that has never been Lada's strongest point. In the Bloomberg article, Renault's managing director for Russia, Bruno Ancelin, said, "You don't buy a big brand in order to kill it. If you ask Russian customers if they want to buy a Lada today, they would probably say no, because of quality issues. But if you ask again if they would be ready to buy the same car with an improved quality, 90% of them say yes. It's a brand they're very attached to, because of a strong nationalist feeling."
Outlook and Implications
What the AvtoVAZ brand means to most Russian consumers is indeed one of the key elements in the future prospects of the company as it looks to grab its share of the forecast increases in the domestic market over the next few years. IHS Automotive is forecasting that light-vehicle sales in Russia will rise from 2.68 million units in 2011 to 3.45 million units in 2018. In fact, it should be noted that our forecast is not as bullish as some other predictions for the Russian light-vehicle market, with the government forecasting that the market will reach 3.4 million units by as early as 2014. Renault-Nissan is due to complete the full takeover of the joint-venture (JV) company that has been set up to operate AvtoVAZ by 2014, as long as other conditions are agreed, and then the company will be able to have full autonomy over its strategy for the country's biggest indigenous carmaker. It is right that Renault-Nissan is looking to keep AvtoVAZ very much a budget and value-orientated brand, and it is also right that the company should improve on its dubious quality record. Whether there is enough residual positive feeling for the Lada brand in Russia for it to compete effectively against the legion of foreign OEMs that have entered the market in recent years is somewhat moot. There is no way that the Lada brand will begin to penetrate back upwards in terms of market share, but if it can maintain around a 20% share of a growing market, the brand could become an important generator of bottom-line growth for Renault, as well as increasing the company's overall global volumes and purchasing economies of scale. Renault and Nissan are looking to plug into AvtoVAZ's production and distribution network in Russia and benefit from the scale and reach that these networks afford. As a result, on a joint basis the group intends to boost the combined market share of Lada, Renault, and Nissan in Russia to 40% by 2015 from 33% last year. IHS Automotive projects Lada's market share to recover to 21% in 2014. However, Renault must help Lada convince the Russian consumer that it is serious about improving the quality and all-round capability of its products, while Renault-Nissan should also look at accelerating the current model development programme. After the Largus, the first Renault-derived Lada model is not scheduled to arrive until 2015 in the form of the B0-platform-based B-Sedan, a year after the equivalent Renault and Nissan models are due to go into production. However, Renault also cannot commit too much in the way of resources until the full takeover of AvtoVAZ is completed, which is due in 2014. This is the difficult balancing act that Renault is currently trying to achieve in terms of its Russian adventure.
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