French carmaker Renault announced on Monday that it is leaving Russia in an agreement agreed with the Russian government that will allow Renault the opportunity to resume business in the country in the future.
Under the agreement, Renault will sell its 68 percent stake in AvtoVAZ, Russia’s largest carmaker, to a Moscow-based automotive research institute known as NAMI. Renault did not disclose the price, but a person familiar with the situation, who requested anonymity to discuss details that have not been released, said the carmaker had been paid a token sum of 1 ruble.
NAMI will continue to operate AvtoVAZ’s two large car plants and pay its employees. Renault can then buy back the shares within six years, Renault said in announcing the deal.
“Today we have made a difficult but necessary decision and we are making responsible choices for our 45,000 employees in Russia,” said Luca de Meo, CEO of the French carmaker.
Renault did not immediately disclose how much it received for the case. The company said it would receive a financial blow of 2.2 billion euros ($ 2.3 billion) in the first half of the year due to sales and sharply reduced its financial outlook for 2022.
Russia’s deal with Renault offers a window on how the Kremlin is trying to create opportunities for Western companies to return to doing business there when the dust settles from President Vladimir Putin’s brutal invasion of Ukraine.
Western companies have come under enormous pressure to give up on Russia, and hundreds of them have suspended operations or given up ventures with Russian partners, increasing pressure on the Russian economy. On Monday, McDonald’s said it would sell its business in Russia to a local buyer.
Russia’s Minister of Industry and Trade Denis Manturov said earlier that AvtoVAZ, the manufacturer of Lada, Russia’s best-selling car, would likely be handed over to NAMI for care “with the possibility of repurchase if our colleagues decide to come back “
Since the beginning of the war, the Kremlin has argued that Western companies are withdrawing from Russia mainly because of political and social pressure, not because of economic justification.
But while Mr Putin has threatened to nationalize Western companies leaving, the government is using other mechanisms, such as the one agreed with Renault, that could encourage companies to eventually return.
Russia is Renault’s second-largest car market after France, accounting for about 10 percent of global sales. In 2008, Carlos Gonn, Renault’s chief executive 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 look after Mr Gon as a man who can do the job.
Renault’s partnership with AvtoVAZ added to Mr. Gon’s high salary at the time, attracting the attention of some Renault shareholders. Yet the deal eventually made Renault the largest carmaker in Russia, removing 500,000 Ladas and Renault cars from its assembly line each year for increasingly wealthy Russian consumers.
In March, however, Renault announced it was shutting down a plant in Moscow and reevaluating its partnership with AvtoVAZ after Western sanctions blocked imports of computer chips and other parts needed for cars. The announcement came hours after Ukrainian President Vladimir Zelensky, in an address to the French Senate, called on Renault and other French multinationals to leave Russia.
Initially, Renault tried to keep its Russian factories operating, even when Russia invaded Ukraine, citing the need to continue producing for the local market. At closed-door meetings at the start of the conflict, French government officials called on top officials to avoid hasty decisions to leave.
The French state has a 15% stake in Renault and has a seat on the board. President Emmanuel Macron told a news 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 keep paying its employees – especially after Moscow said it would punish foreign companies that stopped paying workers.
But Western restrictions on the supply of parts to Russia soon made it impossible to keep the two factories running.
Western sanctions against Russian oligarchs close to Putin have also affected them.
Renault’s partner in AvtoVAZ is the Russian Technologies Corporation, known as Rostech, which has a 32% stake in the venture through a Dutch holding company. Rostech is run by Sergei Chemezov, who has been the target of Western sanctions since Russia’s invasion. Mr Chemezov is said to be 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 Gon in the 2008 Renault-AvtoVAZ deal, vigorously defended Russia’s war in Ukraine as “necessary”. Among other things, Rostech produces Russian Kalashnikov rifles, as well as ammunition, military equipment and aircraft engines.
As Russia’s economy faces a sharp economic downturn as international sanctions bite, Moscow seems eager to quell the pain. Under the agreement, Renault’s Moscow plant will continue to produce cars. Moscow’s Sergei Sobyanin announced in a blog post Monday that the city would take over the plant, which will produce cars under the Moskvich brand, so that “thousands of employees will not lose their jobs.”
Renault is considering the option of buying back its stake in AvtoVAZ, an important part of any deal, according to someone familiar with the situation. But any future redemption will depend on the geopolitical circumstances at the time and the state of Western sanctions against Russia, the man added.
Renault representatives did not comment further. But Mr. Gon did not hesitate to speak. In an interview with French television BFM last month from his home in Lebanon, where he lives as a fugitive, after fleeing in 2019 from a criminal investigation in Japan for alleged financial misconduct as head of the Nissan-Renault-Mitsubishi alliance, he said the political the pressure on Renault to leave Russia is “unfortunate”.
“Russia will not disappear,” he said. “This is a great country that is going through a difficult phase today. Obviously Ukraine even more so. But the market will remain and one day or another the situation will return to normal. “
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