French carmaker Renault announced on Monday that it is leaving Russia in a deal negotiated with the Russian government, giving Renault the opportunity to resume business in the country at a future date.
Under the agreement, Renault will sell its 68 percent stake in AvtoVAZ, Russia’s largest automaker, to a Moscow-based automotive research institute known as NAMI. Renault did not disclose the price, but a person with knowledge of the situation, who spoke on condition of anonymity to discuss details that were not made public, said the carmaker received the token amount of 1 ruble.
NAMI would continue to operate AvtoVAZ’s two sprawling auto plants and pay its employees. Renault could then buy back the stake within six years, Renault said when announcing the deal.
“Today we made a difficult but necessary decision, and we are making a responsible choice for our 45,000 employees in Russia,” said Luca de Meo, the CEO of the French carmaker.
Renault did not immediately disclose how much it will receive for the bet. The company said it would face a financial hit of €2.2 billion ($2.3 billion) in the first half of the year from the sale, and has slashed its financial outlook for 2022.
Russia’s deal with Renault offers a picture of how the Kremlin is trying to create openings for Western companies to do business there again after the dust settles after President Vladimir V. Putin’s brutal invasion of Ukraine.
Western companies have come under tremendous pressure to divest from Russia, with hundreds of them suspending operations or ceasing collaborations with Russian partners, putting pressure on the Russian economy. McDonald’s said Monday it would sell its business in Russia to a local buyer.
Russian Industry and Trade Minister Denis Manturov has previously said that AvtoVAZ, the maker of Russia’s best-selling Lada car, will likely be transferred to NAMI for care delivery “with the option of repurchase, if our colleagues decide to return.”
The Kremlin has maintained since the start of the war that Western companies withdrew from Russia primarily because of political and social pressures, rather than economic reasons.
But while Mr Putin has threatened to nationalize Western companies that leave, the government is also using other mechanisms, such as the one negotiated with Renault, that could encourage companies to eventually come back.
Russia is the second largest market for Renault cars after France, accounting for about 10 percent of global sales. In 2008, Carlos Ghosn, CEO of Renault at the time, agreed to partner with AvtoVAZ with the direct blessing of Mr. Putin, who wanted a foreign partner to help improve quality and considered Mr. Ghosn to be the man to get the job done. could clear.
Renault’s partnership with AvtoVAZ at the time contributed to Mr Ghosn’s hefty salary, which was criticized by some of Renault’s shareholders. Still, the deal ultimately made Renault Russia’s largest automaker, rolling 500,000 Lada and Renault cars off the assembly line each year for an increasingly wealthy group of Russian consumers.
However, in March, Renault announced it was shutting down operations at a Moscow factory and reassessing its partnership with AvtoVAZ after Western sanctions blocked imports of computer chips and other parts needed for cars. The announcement was made hours after Ukraine’s President Volodymyr Zelensky, in a speech to the French Senate, called on Renault and other French multinationals to leave Russia.
Renault had initially tried to keep its Russian factories running even as Russia attacked Ukraine, citing the need to continue producing for the local market. In closed meetings at the start of the conflict, French government officials urged top executives not to make hasty decisions to leave.
The French state owns a 15 percent stake in Renault and has a seat on the board. President Emmanuel Macron said at a press conference in March that French companies should be “free to decide for themselves” whether to stay in Russia.
Renault, like other Western companies, also had to continue to pay its employees, especially after Moscow said it would punish foreign companies that stopped paying employees.
But Western restrictions on shipping parts to Russia soon made it impossible to keep the two plants up and running.
Western sanctions against Russian oligarchs close to Putin also took their toll.
Renault’s partner in AvtoVAZ is Russian Technologies Corporation, known as Rostec, which has a 32 percent stake in the company through a Dutch holding company. Rostec is led by Sergei Chemezov, who was the target of Western sanctions after the Russian invasion. Mr Chemezov is reportedly a former KGB agent who worked with Mr Putin in East Germany before the fall of the Soviet Union.
Mr Chemezov, who was a key interlocutor with Mr Ghosn on the 2008 deal between Renault and AvtoVAZ, has vigorously defended the Russian war in Ukraine as “necessary”. Rostec also makes the Russian Kalashnikov assault rifles, among others, as well as ammunition, military equipment and aircraft engines.
With the Russian economy facing a steep economic downturn as international sanctions bite, Moscow seems eager to dampen the pain. Under the agreement, the Renault plant in Moscow will continue to produce cars. Sergei Sobyanin, the mayor of Moscow, announced on his blog Monday that the city would take over the factory, which will build passenger cars under the Moskvich brand so that thousands of workers “wouldn’t be out of work”.
Renault considered the possibility of buying back its stake in AvtoVAZ, an important part of any deal, according to a person with knowledge of the situation. But any future buybacks would depend on the geopolitical conditions at the time and the state of Western sanctions against Russia, the person added.
Renault officials made no further comment. But Mr Ghosn has not hesitated to speak out. In an interview with French BFM TV last month from his home in Lebanon, where he lives as a fugitive after escaping a 2019 criminal investigation in Japan for alleged financial misconduct as head of the Nissan-Renault-Mitsubishi auto alliance, he said he. that the political pressure built up on Renault to leave Russia was “unfortunate”.
“Russia will not disappear,” he said. “It is a great country that is going through a difficult phase today. Of course Ukraine even more so. But the market will stay and one day or another the situation will normalize.”
