Russian Izhavto Succumbs to the Crisis

The Russian automotive industry lost yesterday its first assembly plant, as Izhavto announced it would stop production indefinitely, Autonews reported. The closure of the plant, which assembles vehicles for Korean Kia and Russian AvtoVAZ will take its toll on all of its 5,000 workers.

"We have been taking a loss of $5 million every month for five months. We can't handle it anymore. We have been forced to take the last resort and close the plant," Dmitry Rumyantsev, Izhavto spokesman was quoted as saying by Reuters.

Izhavto had a production capacity of 350,000 and even if other manufacturer and plants did scale down production, the Izhevsk based plant is the first one in Russia to completely shut down. The plant's spokesman said that the problems began when AvtoVAZ decided not to acquire the assembly unit in a joint venture with Renault.

In addition, the continuing devaluation of the ruble added to the problem, as prices for foreign parts increased by as much as 40 percent. Izhavto now has a debt who's value amounts to $354 million, over 75 percent of which is owed to Sberbank, Russia's largest lender.

As we reported a few days ago, Russian prime minister Vladimir Putin confirmed the fact that AvtoVAZ will receive $587 million in state funds to get through the economic crisis and pay its debts to part suppliers. Even if the aid granted to AvtoVAZ is part of a multi billion dollar package, none of the government's money was intended for Izhavto.

It is unclear at this point how this measure will affect Kia and AvtoVAZ, given the fact that in 2008, the plant assembled 32,576 units of the Spectra model and around 6,000 Kia Sorentos.
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About the author: Daniel Patrascu
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Daniel loves writing (or so he claims), and he uses this skill to offer readers a "behind the scenes" look at the automotive industry. He also enjoys talking about space exploration and robots, because in his view the only way forward for humanity is away from this planet, in metal bodies.
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