18 December 2002 02:08
GAZ Puts Brakes on Volga Production
GAZ this week will halt production of its once-popular Volga sedan in a demand-driven shutdown that could last weeks
or even months, the company said Tuesday.
"We don't hide the fact that the car is outdated," company spokesman Vasily Sarchev said by telephone
from GAZ's Nizhny Novgorod headquarters.
As the only luxury sedan available to regular consumers, the Volga was once the most desired car in the Soviet
Union.
But sales have fallen as demand for used imports in the same price category has risen.
"Although the profit margin on the car is very slim, we can't raise prices because consumers are hardly
buying it as it is," Sarchev said.
He said just 63,349 Volgas were produced in the first 11 months of the year, a decline of 25 percent over the same
period last year.
He would neither confirm nor deny media reports that production will not restart until February, and then only for
export, but he suggested they were true.
"We don't deny there are a few large export orders scheduled for that period," he said. GAZ and its
dealers have two months' worth of Volgas in stock, "so it doesn't make sense for us to keep
producing," he added.
The nation's second-largest automaker, however, hasn't completely lost its shine -- overall production at
its massive factory in Nizhny Novgorod is up 5 percent this year to 182,754 vehicles, thanks to the profitable Sobol and
Gazel lines of commercial vans and trucks.
But falling demand for Russian automobiles is hitting GAZ's rivals, too. The nation's largest automaker,
AvtoVAZ, has been forced to cut production by a third until the end the year, although many believe it could take the
company well into the new year before normalcy resumes. And No. 3 carmaker Izhmash-Avto has also cut back its production
targets for the year, but not as drastically. An Izhmash spokesman said "the situation on the market" has
forced the company to halt production for a week starting Dec. 23.
"Car companies share suppliers, so when VAZ cuts production, these suppliers ask us to slow down as well because
its not profitable for them to produce just for GAZ when their output is roughly 70 percent oriented toward VAZ and 30
percent toward us," Sarchev said.
Meanwhile, GAZ's board of directors voted over the weekend to increase the company's charter capital by
issuing an additional 25 percent of common stock.
The share issue could raise around $25 million, according to investment bank Troika Dialog.
"The question I would want to ask GAZ is how are they going to spend the money?" said Troika automotive
analyst Andrei Kormilitsin.
GAZ declined to comment on the issue.
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