Giving Ailing Izhmash-Avto a New Lease on Life

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Izhevsks car factory owes its existence to Soviet Field Marshal Dmitry Ustinov. In 1965, as Izhevsks supervisor, Ustinov won the right to expand the plant to produce automobiles as well as Kalashnikov machine guns. Ustinov helped bring in Renault as a main contractor, and firms from Japan, Germany and Italy provided equipment. Construction was completed in record time, and in March 1966, the Council of Ministers decreed that by December the first cars would roll off the assembly line.

Initially, the Izhevsk factory produced Moskvich cars and later began to develop its own makes. But when AvtoVAZ began operations in Tolyatti on the Volga River, it began to sideline the Izhevsk factory. Then there was a sudden fall, and in 1997, the 8,000-strong factory produced only 8,000 vehicles.

This March, a team of anti-crisis managers arrived at the factory led by Mikhail Blokhin. Blokhin had previously managed AvtoVAZs RosLada assembly company in Syzran, which is controlled by the SOK group of Samara-based companies, a longtime AvtoVAZ partner.

Blokhin says the 35-year-old plant has a second wind.

Q:
After AvtoVAZ and the SOK group signed an investment agreement with Izhmash-avto, they became the companys strategic investors. What are the objectives of these two companies at Izhevsk?
A:
I am not a representative of either AvtoVAZ or the SOK group. However, everyone knows that AvtoVAZ has a problem with output: It must maintain its parts production and at the same time, introduce new models. Here in Izhevsk, you had a steadily rotting car factory with no working capital and no means of increasing production. However, there is a niche for this vehicle on the market [the Izh-2126 Oda.] As recent months have shown, our production cant keep up with sales.

I was invited to the factory in order to bring it out of a crisis. And an investor was also invited, with whom an agreement was signed.

Q:
But which one is Izhmash-avtos principal partner?
A:
It is impossible to say definitely. The factory is already starting to bring in money on its own. Earlier, it was trickier. But now, all the materials and parts are being bought with money the factory has made from selling its cars.

But the old problems, of course, remain. A debt repayment schedule has been signed concerning both federal-level debts as well as debts to the local budget and to our suppliers. It is wrong to cut off the branch you sit on. By constantly increasing production, we hope to get to a stage at which we will be able to pay back all our debts. Our prime concern is to pay back wage arrears. Previously, wages hadnt been paid for 12 months. By the end of the year, we will have paid them back in full.

Q:
And what is the schedule for paying back other debts?
A:
In many cases this is a commercial secret. We have problems with our creditors, but we dont need to tell the whole world about them. Payback dates depend on our output volumes. If next year we can increase production to 60,000 vehicles, then this will be the starting point, and the factory would be in a position to start settling its debts without a loss. We have already broken even. This year, we are planning to manufacture up to 30,000 vehicles.

The main task now is somewhat different and more prosaic. We sell our Oda for less than the VAZ models. Our task is to make a reliable and popular automobile that people will buy and that wont make a loss on the servicing under warranty. And this will allow us to increase its price to at least that of the basic VAZ "classics."

Q:
And when will the VAZ classics start being built on the Izhmash assembly lines?
A:
This subject is under discussion. We have to sit down and think about what we are doing at present. The project in Syzran [RosLada] also only started to work after thorough analysis had been carried out. The project was born in August 1997 and implemented in February 1998.

Q:
So the project in Izhevsk will be considered for at least half a year?
A:
Naturally. I dont think one could find a single investor in Russia that could resurrect a car factory, build a new car and develop parts production without the help of banks without centralized financing. We cant force development at the moment, and, therefore, we are bringing in the analysts. At the moment, we are developing the basis for investment in car-part production with our suppliers. While we are able to produce molded parts, weld and assemble vehicles, our parts suppliers dont, for example, have the ability to produce plastic parts. Their financing must be organized by the factory to purchase the minimum in imports and the maximum of domestic machine tools.

Q:
By parts suppliers you are referring to factories controlled by the SOK group DAAZ, OSVAR and others?
A:
These factories are working well theres no need to invest in them. No, I meant the factories in the Urals and Siberian sectors that were never equipped with the necessary facilities in the past.

Q:
Literally one month before AvtoVAZ managers appeared in Izhevsk, the management of Izhmashs mother holding were considering a different scheme for restructuring Izhmash-avtos debts. It was proposed that the car factorys property complex be transferred to the department for presidential affairs. Why was AvtoVAZ chosen at the end of the day?
A:
The fact is that the department of presidential affairs is essentially an economic and political organization. What is needed, however, are managers and car builders. We need technology that can make production profitable in as short a time as possible. Everyone must stick to what they are best at. If the team working at the factory was sent off to help out in the foodstuffs industry tomorrow, then nothing would get done we dont know the first thing about this area.

Q:
The share capital structure in Izhmash-avto hasnt changed of late, in other words, about 92 percent of the holdings shares belong to Izhmash?
A:
Yes.

Q:
At the same time, shares from an additional share issue of Izhmash are currently being placed. They are to be transferred to the state in payment for the debts of the company; as a result a controlling stake of the holding will belong to the state?
A:
Yes, essentially our car factory will be a state enterprise.