From Volume 36, Issue 32 of EIR Online, Published Aug. 21, 2009
Russia and the CIS News Digest

Crash of the Russian Auto Industry

Aug. 15 (EIRNS)—Russia's auto production—both domestic and foreign-invested—is teetering on the brink. The auto producer IzhAvto, which employs 5,500 people, has filed for bankruptcy due to losses incurred since the third quarter of 2008. Already, 2,000 workers have been paid to leave their jobs, and the company will try to save the remaining 3,300 jobs, the Moscow Times reported. IzhAvto is the main single employer in the western Urals republic of Udmurtia, assembling cars for the biggest Russian automaker, AvtoVAZ, and the Korean company Kia. The company collapsed under debts of over 11 billion rubles (about $400 million), and began cutting production in April.

The entire Russian auto industry has been folding up over the past year. New car sales contracted 58% year-on-year in July, after falling 56% in June. The Russian Trade and Industry Ministry is proposing a Russian version of the Obama Administration's "cash for clunkers" absurdity—although that operation is already falling apart. Toyota and other foreign companies are all reporting similar disastrous sales and production in Russia.

AvtoVAZ itself is in big trouble. On Aug. 12, the company, which produces the Lada, reported that it had spent nearly all the 33 billion rubles ($1 billion) in state emergency loans ordered by Prime Minister Vladimir Putin in March, to pay off debts to suppliers, as well as wages and taxes. In August, AvtoVAZ imposed the third month-long production halt since November, in an effort to avoid mass layoffs. In the Volga town of Tolyatti (Togliatti), site of the main plant, workers will only return to 20-hour weeks and 50% wage cuts in September, giving them about 6,000-9,000 rubles a month ($200-300), which means you either pay your rent or you eat. Thousands of workers have been protesting in the streets, and much more widespread social unrest is likely in the Autumn.

All over Russia, one-factory towns are being hit hardest by the crisis. There are some 460 such towns, with 35 million people living in them, and these industries made up 40% of Russia's GDP last year, the St. Petersburg Times reported July 30, citing the Moscow Institute for Regional Politics. Auto industry towns are in the biggest trouble, the Institute said.

Sections of Russian agriculture are also suffering. On Aug. 11, Itar-Tass reported that Russia may have a dairy product deficit this Autumn, because so many small milk producers will go out of business. Russian Union of Milk Producers head Andrei Danilenko told the press that this Summer, almost 99% of milk producers reported losses, and some 200,000 cattle were culled.

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